UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the quarterly period ended
October 31, 2008
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the transition period from to
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Commission file number 000-23211
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CASELLA WASTE
SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
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03-0338873
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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25 Greens Hill Lane, Rutland, Vermont
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05701
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code:
(802) 775-0325
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large
accelerated filer in rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
x
Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of November 28,
2008:
Class A Common Stock
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24,628,702
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Class B Common Stock
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988,200
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(in
thousands)
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April 30,
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October 31,
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2008
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2008
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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2,814
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$
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3,110
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Restricted cash
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95
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96
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Accounts receivable - trade, net of allowance for doubtful accounts
of $1,752 and $1,263
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62,233
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66,222
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Notes receivable - officer/employees
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132
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134
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Refundable income taxes
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2,020
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885
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Prepaid expenses
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6,930
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6,048
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Inventory
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3,876
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4,582
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Deferred income taxes
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15,433
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12,368
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Other current assets
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1,692
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8,189
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Current assets of discontinued operations
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260
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Total current assets
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95,485
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101,634
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Property, plant and equipment, net of accumulated depreciation and
amortization of $484,620 and $519,206
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488,028
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501,263
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Goodwill
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179,716
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179,930
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Intangible assets, net
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2,608
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2,680
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Restricted assets
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13,563
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13,602
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Notes receivable - officer/employees
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1,101
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1,117
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Investments in unconsolidated entities
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44,617
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41,832
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Other non-current assets
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10,487
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14,398
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Non-current assets of discontinued operations
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482
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740,602
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754,822
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$
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836,087
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$
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856,456
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The accompanying notes
are an integral part of these consolidated financial statements.
2
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (Continued)
(Unaudited)
(in
thousands, except for share and per share data)
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April 30,
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October 31,
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2008
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2008
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LIABILITIES AND STOCKHOLDERS
EQUITY
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CURRENT LIABILITIES:
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Current maturities of long-term debt
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$
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2,758
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$
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1,736
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Current maturities of financing lease obligations
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266
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Accounts payable
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51,731
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47,340
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Accrued payroll and related expenses
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11,251
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7,176
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Accrued interest
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8,668
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8,005
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Current accrued capping, closure and post-closure costs
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9,265
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5,507
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Other accrued liabilities
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28,202
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26,824
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Current liabilities of discontinued operations
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949
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Total current liabilities
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112,824
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96,854
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Long-term debt, less current maturities
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559,227
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562,280
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Financing lease obligations, less current maturities
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11,674
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Accrued capping, closure and post-closure costs, less current portion
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32,864
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36,219
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Deferred income taxes
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313
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5,043
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Other long-term liabilities
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6,007
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7,144
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Non-current liabilities of discontinued operations
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170
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS EQUITY:
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Class A common stock -
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Authorized
- 100,000,000 shares, $0.01 par value; issued and outstanding - 24,466,000
and 24,601,000 shares as of April 30, 2008 and October 31, 2008, respectively
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245
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246
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Class B common stock -
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Authorized
- 1,000,000 shares, $0.01 par value, 10 votes per share, issued and
outstanding - 988,000 shares
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10
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10
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Accumulated other comprehensive income (loss)
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(2,568
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)
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3,395
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Additional paid-in capital
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276,189
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278,543
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Accumulated deficit
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(149,194
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)
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(144,952
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)
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Total stockholders equity
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124,682
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137,242
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$
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836,087
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$
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856,456
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The accompanying notes
are an integral part of these consolidated financial statements.
3
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
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Three Months Ended
October 31,
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Six Months Ended
October 31,
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2007
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2008
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2007
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2008
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Revenues
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$
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150,483
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$
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157,538
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$
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299,009
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$
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315,442
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Operating expenses:
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Cost of operations
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95,621
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103,728
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192,525
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208,170
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General and administration
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18,898
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18,299
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36,766
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36,739
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Depreciation and amortization
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20,136
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19,505
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40,044
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38,975
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134,655
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141,532
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269,335
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283,884
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Operating income
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15,828
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16,006
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29,674
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31,558
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Other expense/(income), net:
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Interest income
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(246
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)
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(85
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)
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(674
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)
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(267
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)
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Interest expense
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11,031
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10,338
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22,073
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20,494
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Loss from equity method investments
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1,487
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1,045
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3,638
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2,173
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Other (income)/expense
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35
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(64
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)
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(2,360
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)
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(152
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)
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Other expense, net
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12,307
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11,234
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22,677
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22,248
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Income from continuing operations before income taxes and
discontinued operations
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3,521
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4,772
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6,997
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9,310
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Provision (benefit) for income taxes
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(416
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)
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2,706
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714
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5,023
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Income from continuing operations before discontinued operations
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3,937
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2,066
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6,283
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4,287
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|
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Discontinued Operations:
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Loss from discontinued operations (net of income tax benefit of $384,
$0, $734 and $8)
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(670
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)
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(1,274
|
)
|
(11
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)
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Loss on disposal of discontinued operations (net of income tax
benefit (provision) of $122, $0, $122 and ($262))
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(437
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)
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(437
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)
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(34
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)
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|
|
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|
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Net income available to common stockholders
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$
|
2,830
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$
|
2,066
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$
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4,572
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$
|
4,242
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|
The accompanying notes
are an integral part of these consolidated financial statements.
4
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
(in
thousands, except for per share data)
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Three Months Ended
October 31,
|
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Six Months Ended
October 31,
|
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2007
|
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2008
|
|
2007
|
|
2008
|
|
Earnings Per Share:
|
|
|
|
|
|
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Basic:
|
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|
|
|
|
|
|
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Income from continuing operations before discontinued operations
available to common stockholders
|
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$
|
0.16
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|
$
|
0.08
|
|
$
|
0.25
|
|
$
|
0.17
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|
Loss from discontinued operations, net
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
|
|
Loss on disposal of discontinued operations, net
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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Net income per common share available to common stockholders
|
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$
|
0.11
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$
|
0.08
|
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$
|
0.18
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$
|
0.17
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|
|
|
|
|
|
|
|
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Basic weighted average common shares outstanding
|
|
25,343
|
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25,561
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25,335
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25,517
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Diluted:
|
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Income from continuing operations before discontinued operations
available to common stockholders
|
|
$
|
0.16
|
|
$
|
0.08
|
|
$
|
0.25
|
|
$
|
0.17
|
|
Loss from discontinued operations, net
|
|
(0.03
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)
|
|
|
(0.05
|
)
|
|
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Loss on disposal of discontinued operations, net
|
|
(0.02
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)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share available to common stockholders
|
|
$
|
0.11
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|
$
|
0.08
|
|
$
|
0.18
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
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Diluted weighted average common shares outstanding
|
|
25,652
|
|
25,745
|
|
25,592
|
|
25,720
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|
The accompanying notes
are an integral part of these consolidated financial statements.
5
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
Six Months Ended
October 31,
|
|
|
|
2007
|
|
2008
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net income
|
|
$
|
4,572
|
|
$
|
4,242
|
|
Loss from discontinued operations, net
|
|
1,274
|
|
11
|
|
Loss on disposal of discontinued operations, net
|
|
437
|
|
34
|
|
Adjustments to reconcile net income to net cash provided by operating
activities -
|
|
|
|
|
|
Gain on sale of equipment
|
|
(418
|
)
|
(577
|
)
|
Depreciation and amortization
|
|
40,045
|
|
38,975
|
|
Depletion of landfill operating lease obligations
|
|
3,348
|
|
3,520
|
|
Income from assets under contractual obligation
|
|
(1,367
|
)
|
(114
|
)
|
Preferred stock dividend (included in interest expense)
|
|
1,038
|
|
|
|
Amortization of premium on senior notes
|
|
(307
|
)
|
(331
|
)
|
Maine Energy settlement
|
|
(2,142
|
)
|
|
|
Loss from equity method investments
|
|
3,638
|
|
2,173
|
|
Stock-based compensation
|
|
505
|
|
954
|
|
Excess tax benefit on the exercise of stock options
|
|
(16
|
)
|
(157
|
)
|
Deferred income taxes
|
|
691
|
|
4,647
|
|
Changes in assets and liabilities, net of effects of acquisitions and
divestitures -
|
|
|
|
|
|
Accounts receivable
|
|
(4,620
|
)
|
(3,978
|
)
|
Accounts payable
|
|
(4,247
|
)
|
(4,400
|
)
|
Other assets and liabilities
|
|
(7,121
|
)
|
(5,782
|
)
|
|
|
29,027
|
|
34,930
|
|
Net Cash Provided by Operating Activities
|
|
35,310
|
|
39,217
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
(93
|
)
|
(458
|
)
|
Additions to property, plant and equipment - growth
|
|
(7,965
|
)
|
(8,232
|
)
|
-
maintenance
|
|
(35,025
|
)
|
(29,964
|
)
|
Payments on landfill operating lease contracts
|
|
(2,413
|
)
|
(1,825
|
)
|
Proceeds from divestitures
|
|
|
|
670
|
|
Proceeds from sale of equipment
|
|
1,217
|
|
895
|
|
Investment in unconsolidated entities
|
|
(85
|
)
|
(2,510
|
)
|
Proceeds from assets under contractual obligation
|
|
1,422
|
|
114
|
|
Net Cash Used In Investing Activities
|
|
(42,942
|
)
|
(41,310
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
221,605
|
|
60,000
|
|
Principal payments on long-term debt
|
|
(149,468
|
)
|
(59,104
|
)
|
Redemption of Series A redeemable, convertible preferred stock
|
|
(75,056
|
)
|
|
|
Proceeds from exercise of stock options
|
|
286
|
|
1,289
|
|
Excess tax benefit on the exercise of stock options
|
|
16
|
|
157
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
(2,617
|
)
|
2,342
|
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
Provided by (Used in) Operating Activities
|
|
(211
|
)
|
47
|
|
Provided by Investing Activities
|
|
262
|
|
|
|
Cash Provided by Discontinued Operations
|
|
51
|
|
47
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
(10,198
|
)
|
296
|
|
Cash and cash equivalents, beginning of period
|
|
12,366
|
|
2,814
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,168
|
|
$
|
3,110
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
6
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in
thousands)
|
|
Six Months Ended
October 31,
|
|
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
Cash paid during the period for -
|
|
|
|
|
|
Interest
|
|
$
|
19,154
|
|
$
|
20,463
|
|
Income taxes, net of refunds
|
|
$
|
1,770
|
|
$
|
258
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
Summary of entities acquired in purchase business combinations -
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
93
|
|
$
|
458
|
|
Cash paid, net
|
|
(93
|
)
|
(458
|
)
|
|
|
|
|
|
|
Notes payable, liabilities assumed and holdbacks to sellers
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Note receivable recorded upon divestiture
|
|
$
|
4,836
|
|
$
|
|
|
|
|
|
|
|
|
Property, plant and equipment acquired through financing arrangement
|
|
$
|
|
|
$
|
11,940
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
7
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except for per share data)
1. ORGANIZATION
The
consolidated balance sheet of Casella Waste Systems, Inc. (the Parent)
and Subsidiaries (collectively, the Company) as of October 31, 2008, the
consolidated statements of operations for the three and six months ended October 31,
2007 and 2008 and the consolidated statements of cash flows for the six months
ended October 31, 2007 and 2008 are unaudited. In the opinion of management, such financial
statements together with the consolidated balance sheet as of April 30,
2008 include all adjustments (which include normal recurring and nonrecurring
adjustments) necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented. The consolidated financial statements
presented herein should be read in conjunction with the Companys audited
consolidated financial statements as of and for the twelve months ended April 30,
2008 included as part of the Companys
Annual Report on Form 10-K for the year ended April 30, 2008 (the Annual
Report). The results for the three and
six month periods ended October 31, 2008 may not be indicative of the
results that may be expected for the fiscal year ending April 30, 2009.
2. BUSINESS COMBINATIONS
During
the six months ended October 31, 2008, the Company acquired two solid
waste hauling operations. The
transactions were in exchange for total consideration of $458 in cash. During the six months ended October 31,
2007, the Company acquired three solid waste hauling operations. These transactions were in exchange for total
consideration of $93 in cash. The
operating results of these businesses are included in the consolidated
statements of operations from the dates of acquisition. The purchase prices have been allocated to
the net assets acquired based on their fair values at the dates of acquisition,
including the value of non-compete agreements and client lists, with the
residual amounts allocated to goodwill.
The pro forma effect, as if each of the acquisitions had been made on May 1,
2007, do not vary materially from actual reported results for the three and six
months ended October 31, 2007 and 2008.
3. GOODWILL
AND INTANGIBLE ASSETS
The
following table shows the activity and balances related to goodwill from April 30,
2008 through October 31, 2008:
|
|
North
Eastern
Region
|
|
South
Eastern
Region
|
|
Central
Region
|
|
Western
Region
|
|
FCR
Recycling
|
|
Total
|
|
Balance, April 30, 2008
|
|
$
|
23,655
|
|
$
|
31,645
|
|
$
|
31,960
|
|
$
|
54,804
|
|
$
|
37,652
|
|
$
|
179,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
|
18
|
|
|
|
196
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2008
|
|
$
|
23,655
|
|
$
|
31,663
|
|
$
|
31,960
|
|
$
|
55,000
|
|
$
|
37,652
|
|
$
|
179,930
|
|
Intangible
assets at April 30, 2008 and October 31, 2008 consist of the
following:
8
|
|
Covenants
not to
compete
|
|
Client Lists
|
|
Licensing
Agreements
|
|
Contract
Acquisition
Costs
|
|
Total
|
|
Balance, April 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
15,125
|
|
$
|
1,597
|
|
$
|
920
|
|
$
|
58
|
|
$
|
17,700
|
|
Less accumulated amortization
|
|
(14,189
|
)
|
(726
|
)
|
(167
|
)
|
(10
|
)
|
(15,092
|
)
|
|
|
$
|
936
|
|
$
|
871
|
|
$
|
753
|
|
$
|
48
|
|
$
|
2,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
$
|
13,870
|
|
$
|
1,597
|
|
$
|
920
|
|
$
|
389
|
|
$
|
16,776
|
|
Less accumulated amortization
|
|
(13,097
|
)
|
(772
|
)
|
(201
|
)
|
(26
|
)
|
(14,096
|
)
|
|
|
$
|
773
|
|
$
|
825
|
|
$
|
719
|
|
$
|
363
|
|
$
|
2,680
|
|
Intangible
amortization expense for the three and six months ended October 31, 2007
and 2008 was $151, $154, $301 and $301, respectively. The intangible amortization expense estimated
as of October 31, 2008 for the five fiscal years following fiscal year
2008 is as follows:
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Thereafter
|
|
$
|
588
|
|
$
|
444
|
|
$
|
347
|
|
$
|
268
|
|
$
|
211
|
|
$
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. NEW
ACCOUNTING STANDARDS
In
February 2007, the FASB issued SFAS No.159,
The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an amendment of FASB Statement No. 155
(SFAS
No. 159). SFAS No. 159 provides companies with an option to
report selected financial assets and liabilities at fair value. A company shall
report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date. Upfront costs
and fees related to items for which the fair value option is elected are
recognized in earnings as incurred and not deferred. SFAS No. 159 is
effective as of the beginning of an entitys first fiscal year that begins
after November 15, 2007. The
Company adopted this statement on May 1, 2008, but it did not have any
impact on the Companys financial position or results of operations as the
Company did not make any fair value elections under this standard.
In
December 2007, the FASB issued SFAS No. 141(R),
Business
Combinations (revised - 2007)
(SFAS No. 141(R)). SFAS No. 141(R) is
a revision to previously existing guidance on accounting for business
combinations. The statement retains the fundamental concept of the purchase
method of accounting, and introduces new requirements for the recognition and
measurement of assets acquired, liabilities assumed and noncontrolling
interests. SFAS No. 141(R) also requires acquisition-related
transaction and restructuring costs to be expensed rather than treated as part
of the cost of the acquisition. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15,
2008. The impact of adoption of this statement on the Companys
Consolidated Financial Statements is dependent on the nature and volume of
future acquisitions, and, therefore, cannot be determined at this time.
In
March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities
(SFAS No. 161). SFAS No. 161
amends and expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities
, and requires entities to provide enhanced qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair values and amounts of gains and losses on derivative
contracts, and disclosures about credit-risk-related contingent features in
derivative agreements. This statement
applies to all entities and all derivative instruments. SFAS No. 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008.
As SFAS No. 161 relates specifically to
9
disclosures,
the adoption will have no impact on the Companys financial position, results
of operations or cash flows.
In
April 2008, the FASB issued FSP No. 142-3,
Determination of the Useful Life of Intangible Assets
(FSP
FAS No. 142-3). FSP FAS No. 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142,
Goodwill
and Other Intangible Assets
(SFAS No. 142). FSP FAS No. 142-3
is intended to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS No. 141(R) and
other U.S. generally accepted accounting principles. FSP FAS No. 142-3 is
effective for fiscal years beginning after December 15, 2008. The Company
does not expect the adoption of FSP FAS No. 142-3 to have a material
impact on its financial position or results of operations.
5. LEGAL PROCEEDINGS
On
September 12, 2001, the Companys subsidiary, North Country Environmental
Services, Inc. (NCES), petitioned the New Hampshire Superior Court (Superior
Court) for a declaratory judgment concerning the extent to which the Town of
Bethlehem, New Hampshire (Town) could lawfully prohibit NCESs expansion of
its landfill in Bethlehem. The Town
filed counterclaims seeking contrary declarations and other relief. The parties appealed the Superior Courts
decision to the New Hampshire Supreme Court (Supreme Court). On March 1, 2004, the Supreme Court
ruled that NCES had all necessary local approvals to landfill within a 51-acre
portion of its 105-acre parcel and the Town could not prevent expansion in that
area. A significant portion of NCESs
Stage IV expansion as originally designed and approved by the New Hampshire
Department of Environmental Services (NHDES), however, was to lie outside the
51 acres. With respect to expansion
outside the 51 acres, the Supreme Court remanded four issues to the Superior
Court for further proceedings. On April 25,
2005, the Superior Court rendered summary judgment in NCESs favor on two of
the four issues, leaving the other two issues for trial. The two issues that were decided on summary
judgment remain subject to appeal by the Town.
In March of 2005, the Town adopted a new zoning ordinance that
prohibited landfilling outside of a new District V, which corresponded to the
51 acres. The Town then amended its
pleadings to seek a declaration that the new ordinance was valid. The parties each filed motions for partial
summary judgment. Following the courts
decisions on those motions, the validity of the new ordinance remained subject
to trial based on two defenses raised by NCES.
On March 30, 2007, NCES applied to the NHDES for a permit
modification under which all Stage IV capacity (denominated Stage IV, Phase II)
would be relocated within the 51 acres.
That application was superseded by a new application, filed on November 30,
2007, that would bring all berms along the perimeter of the landfills
footprint within the 51 acres as well.
NCES sought a stay of the litigation on the ground that, if NHDES were
to grant the permit modification, there would be no need for NCES to expand
beyond the 51 acres for eight or more years, and the case could be dismissed as
moot or unripe. The Superior Court
granted the stay pending a decision by NHDES.
The permit modification application currently remains pending before
NHDES. The NHDES conducted public hearings in July and September 2008. The NHDES decision to grant the permit
modification is expected to be made during the fourth quarter of calendar year
2008.
The
Company, on behalf of itself, its subsidiary FCR, LLC (FCR), and as a
Majority Managing Member of Green Mountain Glass, LLC (GMG), initiated a
declaratory judgment action against GR Technologies, Inc. (GRT), Anthony
C. Lane and Robert Cameron Billmyer (the Defendants) on June 8, 2007, to
resolve issues raised by GRT as the minority shareholder of GMG. The issues addressed in the action included
exercise of management discretion, right to intellectual property, and other
related disputes. The Defendants
counterclaimed in May 2008 seeking unspecified damages on a variety of
bases including, among others, breach of contract, breach of fiduciary duty,
fraud, tortious interference with business relations, induced infringement and
other matters. Management intends to
vigorously contest
10
those allegations, and it believes that the claims have no merit
substantively or as a matter of law.
Additionally, the Defendants filed a Derivative Action in Rutland
Superior Court as a Managing Member of GMG on July 2, 2008 against several
employees of the Company and its subsidiary FCR, LLC, making similar
allegations. On September 16, 2008,
the Company filed a Motion for Summary Judgment, and a Proposed Order Decreeing
Dissolution and Appointing a Special Master, alleging that the relationship of
GRT and FCR in GMG is irretrievably broken.
All litigation is in its early stages and, accordingly, it is not
possible at this time to evaluate the likelihood of an unfavorable outcome or
provide meaningful estimates as to amount or range of potential loss, but
management currently believes that the litigation, regardless of its outcome,
will not have a material adverse affect on the Companys financial condition, results of operations or
cash flows.
The
Company offers no prediction of the outcome of any of the proceedings or
negotiations described above. The Company is vigorously defending each of these
lawsuits and claims. However, there can be no guarantee the Company will
prevail or that any judgments against the Company, if sustained on appeal, will
not have a material adverse effect on the Companys business, financial
condition or results of operations or cash flows.
The Company is a defendant in certain other lawsuits
alleging various claims incurred in the ordinary course of business, none of
which, either individually or in the aggregate, the Company believes are
material to its financial condition, results of operations or cash flows.
6.
ENVIRONMENTAL LIABILITIES
The Company is subject to liability for environmental
damage, including personal injury and property damage, that its solid waste,
recycling and power generation facilities may cause to neighboring property
owners, particularly as a result of the contamination of drinking water sources
or soil, possibly including damage resulting from conditions existing before
the Company acquired the facilities. The Company may also be subject to
liability for similar claims arising from off-site environmental contamination
caused by pollutants or hazardous substances if the Company or its predecessors
arrange or arranged to transport, treat or dispose of those materials.
On
December 20, 2000, the State of New York Department of Environmental
Conservation (DEC) issued an Order on Consent (Order) which named Waste
Stream, Inc. (WSI), a Casella subsidiary, General Motors Corporation (GM)
and Niagara Mohawk Power Corporation (NiMo) as Respondents. The Order required that the Respondents
undertake certain work on a 25-acre scrap yard and solid waste transfer station
owned by WSI, including a Remedial Investigation and Feasibility Study (the
Study), and permitted the Respondents to propose and implement, if approved by
DEC, interim remedial measures for the site.
It is anticipated that the Study will be submitted to the DEC in the
next ninety days. It is presently
impossible to meaningfully determine a range of the dollar cost of our
potential participation in the remediation, principally because (i) there
is a wide range of remediation options under consideration, and (ii) other
Respondents will be required to contribute to the remediation.
Any substantial liability incurred by the Company
arising from environmental damage could have a material adverse effect on the
Companys business, financial condition and results of operations. The Company is not presently aware of any
situations that it expects would have a material adverse impact on its
business, financial condition, results of operations, or cash flows.
7.
STOCK-BASED COMPENSATION
On
July 28, 2008, the Company granted restricted stock units under the 2006
Stock Incentive Plan (the 2006 Plan) in the form of performance shares to
certain employees. Receipt of these
shares is contingent upon the Companys attainment of certain performance
metrics on an average basis over a
11
three
fiscal year period. At the one hundred
percent level of attainment the grantee pool would be entitled to a total of
212 shares of Class A Common Stock.
These units were granted at a value of $12.14 per share and are unvested
and unissued at October 31, 2008.
On
October 14, 2008, the Company granted 27 restricted stock units under the
2006 plan to non-employee directors of the Company. These shares will vest in equal amounts over
a three year period starting on the first anniversary of the grant date.
Stock
options granted generally vest over a one to four year period from the date of
grant and are granted at prices at least equal to the prevailing fair market
value at the issue date. In general, options are issued with a life not to
exceed ten years. Shares issued by the Company upon exercise of stock options
are issued from the pool of authorized shares of Class A Common Stock.
A
summary of stock option activity for the six months ended October 31, 2008
is as follows:
|
|
Total
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, April 30, 2008
|
|
3,782
|
|
$
|
12.82
|
|
Granted
|
|
5
|
|
12.62
|
|
Exercised
|
|
(111
|
)
|
9.98
|
|
Forfeited
|
|
(279
|
)
|
21.27
|
|
Outstanding, October 31, 2008
|
|
3,397
|
|
12.22
|
|
Exercisable, October 31, 2008
|
|
2,961
|
|
$
|
12.21
|
|
The
weighted average grant date fair value of options granted was $5.09 and $5.49
per option for the six months ended October 31, 2007 and 2008,
respectively. There are 1,841 Class A
Common Stock equivalents available for future grant under the 2006 plan.
The
Company recorded $259, $536, $452 and $899 of stock based compensation
expense related to stock options and restricted stock units during the three
and six months ended October 31, 2007 and 2008, respectively. The Company also recorded $29, $28, $53 and
$55 of stock based expense for the Companys Employee Stock Purchase Plan
during the three and six months ended October 31, 2007 and 2008,
respectively.
The
Companys calculations of stock-based compensation expense for the three and
six months ended October 31, 2007 and 2008 were made using the
Black-Scholes valuation model. The fair value of the Companys stock option
grants was estimated assuming no expected dividend yield and the following
weighted average assumptions were used for the three and six months ended October 31,
2007 and 2008:
12
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
Expected life
|
|
6 years
|
|
|
|
6 years
|
|
6 years
|
|
Risk-free interest rate
|
|
4.71%
|
|
|
|
4.82%
|
|
3.73%
|
|
Expected volatility
|
|
37.83%
|
|
|
|
37.83%
|
|
36.80%
|
|
Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
|
Expected life
|
|
0.5 years
|
|
|
|
0.5 years
|
|
0.5 years
|
|
Risk-free interest rate
|
|
5.02%
|
|
|
|
5.07%
|
|
2.49%
|
|
Expected volatility
|
|
37.22%
|
|
|
|
35.10%
|
|
36.44%
|
|
Expected
life is calculated based on the weighted average historical life of the vested
stock options, giving consideration to vesting schedules and historical
exercise patterns. Risk-free interest rate is based on the U.S. treasury yield
curve for the period of the expected life of the stock option. For stock
options granted during the three and six months ended October 31, 2007 and
2008, expected volatility is calculated using the average of weekly historical
volatility of the Companys Class A Common Stock over the last six years.
The
Black-Scholes valuation model requires extensive use of accounting judgment and
financial estimation, including estimates of the expected term option holders
will retain their vested stock options before exercising them, the estimated
volatility of the Companys Class A Common Stock price over the expected
term, and the number of options that will be forfeited prior to the completion
of their vesting requirements. Application of alternative assumptions could
produce significantly different estimates of the fair value of stock-based
compensation and consequently, the related amounts recognized in the
Consolidated Statements of Operations.
8.
EARNINGS PER SHARE
The following table sets forth the
numerator and denominator used in the computation of earnings per share:
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
2,830
|
|
$
|
2,066
|
|
$
|
4,572
|
|
$
|
4,242
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding, end of
period:
|
|
|
|
|
|
|
|
|
|
Class A common stock
|
|
24,363
|
|
24,601
|
|
24,363
|
|
24,601
|
|
Class B common stock
|
|
988
|
|
988
|
|
988
|
|
988
|
|
Effect of weighted average shares
outstanding during period
|
|
(8
|
)
|
(28
|
)
|
(16
|
)
|
(72
|
)
|
Weighted average number of common shares
used in basic EPS
|
|
25,343
|
|
25,561
|
|
25,335
|
|
25,517
|
|
Impact of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
Dilutive effect of options and restricted
stock
|
|
309
|
|
184
|
|
257
|
|
203
|
|
Weighted average number of common shares
used in diluted EPS
|
|
25,652
|
|
25,745
|
|
25,592
|
|
25,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended October 31,
2007, 2,373 and 2,933 common stock equivalents related to options and warrants
were excluded from the calculation of dilutive shares since the inclusion of
such shares would be anti-dilutive.
For the three and six months ended October 31,
2008, 2,715 and 2,713 common stock equivalents related to options, warrants and
restricted stock units were excluded from the calculation of dilutive shares
since
13
the inclusion of such shares would
be anti-dilutive.
9.
COMPREHENSIVE INCOME
Comprehensive
income is defined as the change in net assets of a business enterprise during a
period from transactions generated from non-owner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. Accumulated other comprehensive income
(loss) included in the accompanying balance sheets consists of changes in the
fair value of the Companys interest rate derivatives and commodity hedge
agreements. Also included in accumulated
other comprehensive income (loss) is the change in fair value of certain
securities classified as available for sale as well as the Companys portion of
the change in the fair value of commodity hedge agreements of the Companys
equity method investment, US GreenFiber, LLC (GreenFiber)
.
Comprehensive
income for the three and six months ended October 31, 2007 and 2008 is as
follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Net income
|
|
$
|
2,830
|
|
$
|
2,066
|
|
$
|
4,572
|
|
$
|
4,242
|
|
Other comprehensive income (loss)
|
|
(101
|
)
|
4,805
|
|
(285
|
)
|
5,963
|
|
Comprehensive income
|
|
$
|
2,729
|
|
$
|
6,871
|
|
$
|
4,287
|
|
$
|
10,205
|
|
The
components of other comprehensive income (loss) for the three and six months
ended October 31, 2007 and 2008 are shown as follows:
|
|
Three Months Ended October 31,
|
|
|
|
2007
|
|
2008
|
|
|
|
Gross
|
|
Tax
effect
|
|
Net of Tax
|
|
Gross
|
|
Tax
effect
|
|
Net of Tax
|
|
Changes in fair value of marketable
securities during the period
|
|
$
|
91
|
|
$
|
32
|
|
$
|
59
|
|
$
|
(89
|
)
|
$
|
(32
|
)
|
$
|
(57
|
)
|
Change in fair value of interest rate
derivatives and commodity hedges during period
|
|
(840
|
)
|
(340
|
)
|
(500
|
)
|
6,525
|
|
2,627
|
|
3,898
|
|
Reclassification to earnings for interest
rate derivatives and commodity hedge contracts
|
|
571
|
|
231
|
|
340
|
|
1,614
|
|
650
|
|
964
|
|
|
|
$
|
(178
|
)
|
$
|
(77
|
)
|
$
|
(101
|
)
|
$
|
8,050
|
|
$
|
3,245
|
|
$
|
4,805
|
|
|
|
Six Months Ended October 31,
|
|
|
|
2007
|
|
2008
|
|
|
|
Gross
|
|
Tax
effect
|
|
Net of Tax
|
|
Gross
|
|
Tax
effect
|
|
Net of Tax
|
|
Changes in fair value of marketable securities
during the period
|
|
$
|
60
|
|
$
|
21
|
|
$
|
39
|
|
$
|
(186
|
)
|
$
|
(65
|
)
|
$
|
(121
|
)
|
Change in fair value of interest rate
derivatives and commodity hedges during period
|
|
(1,539
|
)
|
(612
|
)
|
(927
|
)
|
7,118
|
|
2,865
|
|
4,253
|
|
Reclassification to earnings for interest
rate derivatives and commodity hedge contracts
|
|
999
|
|
396
|
|
603
|
|
3,081
|
|
1,250
|
|
1,831
|
|
|
|
$
|
(480
|
)
|
$
|
(195
|
)
|
$
|
(285
|
)
|
$
|
10,013
|
|
$
|
4,050
|
|
$
|
5,963
|
|
14
10.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective
May 1, 2008, the Company adopted SFAS No. 157,
Fair Value
Measurements
(SFAS No. 157) as it relates to financial assets
and liabilities that are being measured and reported at fair value on a
recurring basis.
SFAS No. 157
provides a framework for measuring fair value and establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value, giving the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 inputs) and the lowest priority to
unobservable inputs (Level 3 inputs).
The
Companys financial assets and liabilities recorded at fair value on a
recurring basis include derivative instruments as well as certain investments
included in restricted assets. The Companys restricted assets measured
at fair value include investments in fixed-maturity securities which serve as
collateral for the Companys self-insurance claims liability, self insurance
reserves and landfill post closure obligations.
The
Companys derivative instruments include interest rate swaps and collars along
with commodity hedges. The Company uses
interest rate derivatives to hedge the risk of adverse movements in interest
rates. The fair value of these cash flow
hedges are based primarily on the LIBOR index.
The Company uses commodity hedges to hedge the risk of adverse movements
in commodity pricing. The fair value of
these hedges is based on futures pricing in the underlying commodities.
The
Company uses valuation techniques that maximize the use of market prices and
observable inputs and minimize the use of unobservable inputs. In measuring the
fair value of the Companys financial assets and liabilities, the Company
relies on market data or assumptions that the Company believes market
participants would use in pricing an asset or liability. As of October 31, 2008, our assets and
liabilities that are measured at fair value on a recurring basis include the
following:
|
|
Fair Value Measurement at October 31, 2008 Using:
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
Restricted assets - available for sale
securities
|
|
$
|
13,602
|
|
$
|
|
|
$
|
|
|
Commodity derivatives
|
|
|
|
|
9,414
|
|
|
|
Total
|
|
$
|
13,602
|
|
$
|
9,414
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest rate derivatives
|
|
$
|
|
|
$
|
1,390
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
1,390
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
The
Companys strategy to hedge against fluctuations in the commodity prices of
recycled paper is to enter into hedges to mitigate the variability in cash
flows generated from the sales of recycled paper at floating prices, resulting
in a fixed price being received from these sales. The Company was party to thirty-three
commodity hedge contracts as of October 31, 2008. These contracts expire between
15
December 2008
and December 2011. The Company has
evaluated these hedges and believes that these instruments qualify for hedge
accounting pursuant to SFAS No. 133,
Accounting
for Derivative Instruments and Hedging Activities, as amended
(SFAS No. 133). As of October 31, 2008 the fair value of
these hedges was an asset of $9,414, with the net amount (net of taxes of $3,791)
recorded as an unrealized gain in accumulated other comprehensive income (loss).
The
Company is party to three separate interest rate swap agreements with three
banks for a notional amount of $105,000.
One agreement for a notional amount of $30,000 effectively fixes the
interest rate index at 4.74% from November 4, 2007 through May 7,
2009. Two agreements, for a notional
amount of $75,000, effectively fix the interest index rate on the entire
notional amount at approximately 4.68% from May 6, 2008 through May 6,
2009. These agreements are specifically
designated to interest payments under the Companys term B loan and are
accounted for as effective cash flow hedges pursuant to SFAS No. 133. As of October 31, 2008, the fair value
of the Companys interest rate swaps was an obligation of $1,090, with the net
amount (net of taxes of $440) recorded as an unrealized loss in accumulated
other comprehensive income (loss).
The
Company is party to two separate interest rate zero-cost collars with two banks
for a notional amount of $60,000. The
collars have an interest index rate cap of 6.00% and an interest index rate
floor of approximately 4.48% and are effective from November 6, 2006
through May 5, 2009. These
agreements are specifically designated to interest payments under the revolving
credit facility and are accounted for as effective cash flow hedges pursuant to
SFAS No. 133. As of October 31,
2008, the fair value of these collars was an obligation of $300, with the net
amount (net of taxes of $119) recorded as an unrealized loss in accumulated
other comprehensive income (loss).
12.
DISCONTINUED OPERATIONS
During
the second quarter of fiscal year 2008, the Company completed the sale of the
Companys Buffalo, N.Y. transfer station, hauling operation and related
equipment in the Western region for proceeds of $4,873 including a note
receivable for $2,500 and net cash proceeds of $2,373. The company recorded a loss on disposal of
discontinued operations (net of tax) of $437.
During
the fourth quarter of fiscal year 2008, the Company terminated its operation of
MTS Environmental, a soils processing operation in the North Eastern region.
The
Company completed the divestiture of its FCR Greenville operation in the
quarter ended July 31, 2008 for cash proceeds of $670. The company recorded a loss on disposal of
discontinued operations (net of tax) of $34.
The
operating results of these operations for the three and six months ended October 31,
2007 and 2008 have been reclassified from continuing to discontinued operations
in the accompanying consolidated financial statements.
Revenues
and loss before income taxes attributable to discontinued operations for the
three and six months ended October 31, 2007 and 2008 were as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Revenues
|
|
$
|
3,368
|
|
$
|
|
|
$
|
7,275
|
|
$
|
282
|
|
Loss before income taxes
|
|
$
|
(1,054
|
)
|
$
|
|
|
$
|
(2,008
|
)
|
$
|
(19
|
)
|
The
Company has recorded contingent liabilities associated with these divestitures
amounting to
16
approximately
$1,396 at October 31, 2008.
In
accordance with EITF Issue No. 87-24,
Allocation
of Interest to Discontinued Operations
, the Company allocates
interest to discontinued operations. The Company has also eliminated certain
immaterial inter-company activity associated with discontinued operations.
13.
SEGMENT
REPORTING
SFAS
No. 131,
Disclosures about Segments of
an Enterprise and Related Information
(SFAS No. 131), establishes standards for reporting
information about operating segments in financial statements. In general, SFAS No. 131 requires that
business entities report selected information about operating segments in a
manner consistent with that used for internal management reporting.
The
Company classifies its operations into North Eastern, South Eastern, Central,
Western, FCR Recycling and Other. The
Companys revenues in the North Eastern, South Eastern, Central and Western
segments are derived mainly from one industry segment, which includes the
collection, transfer, recycling and disposal of non-hazardous solid waste. The North Eastern region also includes Maine
Energy, which generates electricity from non-hazardous solid waste. The Companys
revenues in the FCR Recycling segment are derived from integrated waste
handling services, including processing and recycling of paper, metals,
aluminum, plastics and glass. Ancillary
operations, major customer accounts, discontinued operations and earnings from
equity method investees are included in Other.
17
|
|
North Eastern
|
|
South Eastern
|
|
Central
|
|
Western
|
|
FCR
|
|
|
|
Region
|
|
Region
|
|
Region
|
|
Region
|
|
Recycling
|
|
Three Months Ended October 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
30,637
|
|
$
|
17,830
|
|
$
|
34,834
|
|
$
|
28,126
|
|
$
|
31,471
|
|
Depreciation and amortization
|
|
6,095
|
|
2,586
|
|
5,133
|
|
4,213
|
|
1,643
|
|
Operating income
|
|
1,699
|
|
(987
|
)
|
5,646
|
|
4,118
|
|
5,163
|
|
Total assets
|
|
$
|
175,691
|
|
$
|
128,754
|
|
$
|
154,093
|
|
$
|
179,205
|
|
$
|
97,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
7,585
|
|
$
|
150,483
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
466
|
|
20,136
|
|
|
|
|
|
|
|
Operating income
|
|
189
|
|
15,828
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
97,258
|
|
$
|
832,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Eastern
|
|
South Eastern
|
|
Central
|
|
Western
|
|
FCR
|
|
|
|
Region
|
|
Region
|
|
Region
|
|
Region
|
|
Recycling
|
|
Three Months Ended October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
33,143
|
|
$
|
17,465
|
|
$
|
32,447
|
|
$
|
29,723
|
|
$
|
35,953
|
|
Depreciation and amortization
|
|
6,499
|
|
3,021
|
|
4,083
|
|
3,924
|
|
1,599
|
|
Operating income
|
|
1,553
|
|
(502
|
)
|
4,809
|
|
5,713
|
|
4,786
|
|
Total assets
|
|
$
|
174,521
|
|
$
|
123,559
|
|
$
|
159,327
|
|
$
|
181,603
|
|
$
|
119,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
8,807
|
|
$
|
157,538
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
379
|
|
19,505
|
|
|
|
|
|
|
|
Operating income
|
|
(353
|
)
|
16,006
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
98,124
|
|
$
|
856,456
|
|
|
|
|
|
|
|
18
|
|
North Eastern
|
|
South Eastern
|
|
Central
|
|
Western
|
|
FCR
|
|
|
|
Region
|
|
Region
|
|
Region
|
|
Region
|
|
Recycling
|
|
Six Months Ended October 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
61,652
|
|
$
|
34,975
|
|
$
|
69,748
|
|
$
|
56,480
|
|
$
|
60,742
|
|
Depreciation and amortization
|
|
12,086
|
|
4,731
|
|
10,321
|
|
8,577
|
|
3,348
|
|
Operating income
|
|
2,299
|
|
(2,137
|
)
|
11,219
|
|
8,441
|
|
9,325
|
|
Total assets
|
|
$
|
175,691
|
|
$
|
128,754
|
|
$
|
154,093
|
|
$
|
179,205
|
|
$
|
97,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
Six Months Ended October 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
15,412
|
|
$
|
299,009
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
981
|
|
40,044
|
|
|
|
|
|
|
|
Operating income
|
|
527
|
|
29,674
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
97,258
|
|
$
|
832,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Eastern
|
|
South Eastern
|
|
Central
|
|
Western
|
|
FCR
|
|
|
|
Region
|
|
Region
|
|
Region
|
|
Region
|
|
Recycling
|
|
Six Months Ended October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
65,478
|
|
$
|
34,836
|
|
$
|
66,727
|
|
$
|
59,610
|
|
$
|
71,172
|
|
Depreciation and amortization
|
|
12,678
|
|
5,658
|
|
8,620
|
|
8,005
|
|
3,211
|
|
Operating income
|
|
2,074
|
|
(652
|
)
|
9,624
|
|
11,524
|
|
9,822
|
|
Total assets
|
|
$
|
174,521
|
|
$
|
123,559
|
|
$
|
159,327
|
|
$
|
181,603
|
|
$
|
119,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
Six Months Ended October 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outside revenues
|
|
$
|
17,619
|
|
$
|
315,442
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
803
|
|
38,975
|
|
|
|
|
|
|
|
Operating income
|
|
(834
|
)
|
31,558
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
98,124
|
|
$
|
856,456
|
|
|
|
|
|
|
|
Amounts
of the Companys total revenue attributable to services provided are as
follows:
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Collection
|
|
$
|
69,178
|
|
$
|
70,094
|
|
$
|
138,331
|
|
$
|
141,422
|
|
Landfill / disposal facilities
|
|
28,966
|
|
30,866
|
|
58,169
|
|
59,909
|
|
Transfer
|
|
7,691
|
|
8,717
|
|
15,038
|
|
17,920
|
|
Recycling
|
|
44,648
|
|
47,861
|
|
87,471
|
|
96,191
|
|
Total revenues
|
|
$
|
150,483
|
|
$
|
157,538
|
|
$
|
299,009
|
|
$
|
315,442
|
|
14.
INVESTMENTS IN UNCONSOLIDATED ENTITIES
The
Company entered into an agreement in July 2000 with Louisiana-Pacific
Corporation to combine their respective cellulose insulation businesses into a
single operating entity, GreenFiber, under a joint venture agreement effective August 1,
2000. The Companys investment in GreenFiber amounted to $29,571 and $26,776 at
April 30, 2008 and October 31, 2008, respectively.
19
On
August 15, 2008, the Company made a $2,500 equity contribution to
GreenFiber to support a refinancing of GreenFibers existing revolving credit
facility. In addition, the other member
of GreenFiber, Louisiana-Pacific (LP), made the same equity contribution
resulting in no change to the Companys ownership in GreenFiber. The Company will continue to account for its
50% ownership in GreenFiber using the equity method of accounting.
In
addition, the Company and LP issued a joint and several guarantee of up to
$2,000 to support the refinancing of a GreenFiber term loan. The guarantee can be drawn only upon a
default (as defined) by GreenFiber under this term loan. As of October 31, 2008, the Company has
recorded $75 as the carrying amount of the guarantee.
Summarized
financial information for GreenFiber is as follows:
|
|
April 30,
2008
|
|
October 31,
2008
|
|
|
|
|
|
Current assets
|
|
$
|
23,095
|
|
$
|
26,741
|
|
|
|
|
|
Noncurrent assets
|
|
69,681
|
|
67,344
|
|
|
|
|
|
Current liabilities
|
|
16,229
|
|
17,274
|
|
|
|
|
|
Noncurrent liabilities
|
|
$
|
17,365
|
|
$
|
23,231
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
Revenue
|
|
$
|
41,995
|
|
$
|
35,496
|
|
$
|
75,494
|
|
$
|
65,729
|
|
Gross profit
|
|
7,002
|
|
4,628
|
|
12,433
|
|
9,074
|
|
Net loss
|
|
$
|
(1,816
|
)
|
$
|
(2,090
|
)
|
$
|
(5,409
|
)
|
$
|
(4,347
|
)
|
15. NET ASSETS UNDER CONTRACTUAL
OBLIGATION
Effective
June 30, 2003, the Company transferred its domestic brokerage operations,
as well as a commercial recycling business to former employees who had been
responsible for managing those businesses.
Consideration for the transaction was in the form of two notes
receivable amounting up to $6,925. These
notes are payable within twelve years of the anniversary date of the
transaction, to the extent of free cash flow generated from the operations.
Effective
August 1, 2005, the Company transferred a certain Canadian recycling
operation to a former employee who had been responsible for managing that
business. Consideration for this
transaction was in the form of a note receivable amounting up to $1,313, which
is payable within six years of the anniversary date of the transaction to the
extent of free cash flow generated from the operations.
The
Company has not accounted for these transactions as sales based on an
assessment that the risks and other incidents of ownership have not
sufficiently transferred to the buyers. The net assets of the operations were
disclosed in the balance sheet as net assets under contractual obligation,
and were being reduced as payments are made.
During the three and six months ended October 31, 2007 and 2008,
the Company recognized income on the transactions in the amount of $629, $25, $1,367
and $114, respectively, as payments received on the notes receivable exceeded
the balance of the net assets under contractual obligation. Minimum amounts owed to the Company under
these notes amounted to $2,076 and $1,932 at April 30, 2008 and October 31,
2008, respectively.
20
16. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The
Companys senior subordinated notes due 2013 are guaranteed jointly and
severally, fully and unconditionally, by the Companys
significant wholly-owned subsidiaries. The Parent is the issuer and
non-guarantor of the senior subordinated notes. The information which follows
presents the condensed consolidating financial position as of April 30,
2007 and October 31, 2008, and the condensed consolidating results of
operations for the three and six months ended October 31, 2007 and 2008
and the condensed consolidating statements of cash flows for the six months
ended October 31, 2007 and 2008 of (a) the Parent company only, (b) the
combined guarantors (the Guarantors), each of which is 100% wholly-owned by
the Parent, (c) the combined non-guarantors (the Non-Guarantors), (d) eliminating
entries and (e) the Company on a consolidated basis.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 30, 2008
(in thousands, except for share and per share data)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,260
|
|
$
|
1,306
|
|
$
|
248
|
|
$
|
|
|
$
|
2,814
|
|
Restricted cash
|
|
|
|
95
|
|
|
|
|
|
95
|
|
Accounts receivable - trade, net of
allowance for doubtful accounts
|
|
80
|
|
61,969
|
|
184
|
|
|
|
62,233
|
|
Notes receivable - officers/employees
|
|
132
|
|
|
|
|
|
|
|
132
|
|
Refundable income taxes
|
|
2,020
|
|
|
|
|
|
|
|
2,020
|
|
Prepaid expenses
|
|
2,541
|
|
4,389
|
|
|
|
|
|
6,930
|
|
Deferred taxes
|
|
14,639
|
|
|
|
794
|
|
|
|
15,433
|
|
Other current assets
|
|
501
|
|
5,327
|
|
|
|
|
|
5,828
|
|
Total current assets
|
|
21,173
|
|
73,086
|
|
1,226
|
|
|
|
95,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of
accumulated depreciation and amortization
|
|
2,557
|
|
485,471
|
|
|
|
|
|
488,028
|
|
Goodwill
|
|
|
|
179,716
|
|
|
|
|
|
179,716
|
|
Investment in subsidiaries
|
|
2,898
|
|
|
|
|
|
(2,898
|
)
|
|
|
Other non-current assets
|
|
26,370
|
|
37,254
|
|
13,613
|
|
(4,379
|
)
|
72,858
|
|
|
|
31,825
|
|
702,441
|
|
13,613
|
|
(7,277
|
)
|
740,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
652,849
|
|
(649,823
|
)
|
(7,405
|
)
|
4,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
705,847
|
|
$
|
125,704
|
|
$
|
7,434
|
|
$
|
(2,898
|
)
|
$
|
836,087
|
|
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long term debt
|
|
$
|
1,858
|
|
$
|
900
|
|
$
|
|
|
$
|
|
|
$
|
2,758
|
|
Accounts payable
|
|
4,084
|
|
47,503
|
|
144
|
|
|
|
51,731
|
|
Accrued payroll and related expenses
|
|
2,834
|
|
8,417
|
|
|
|
|
|
11,251
|
|
Other current liabilities
|
|
20,754
|
|
20,079
|
|
6,251
|
|
|
|
47,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
29,530
|
|
76,899
|
|
6,395
|
|
|
|
112,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
550,078
|
|
9,149
|
|
|
|
|
|
559,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
1,557
|
|
35,881
|
|
1,916
|
|
|
|
39,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock -
Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding -
24,466,000 shares
|
|
245
|
|
100
|
|
100
|
|
(200
|
)
|
245
|
|
Class B common stock -
Authorized - 1,000,000 shares, $0.01 par value, 10 votes per share, issued
and outstanding - 988,000 shares
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Accumulated other comprehensive (loss)
income
|
|
(2,568
|
)
|
502
|
|
143
|
|
(645
|
)
|
(2,568
|
)
|
Additional paid-in capital
|
|
276,189
|
|
46,430
|
|
3,988
|
|
(50,418
|
)
|
276,189
|
|
Accumulated deficit
|
|
(149,194
|
)
|
(43,257
|
)
|
(5,108
|
)
|
48,365
|
|
(149,194
|
)
|
Total stockholders equity
|
|
124,682
|
|
3,775
|
|
(877
|
)
|
(2,898
|
)
|
124,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
705,847
|
|
$
|
125,704
|
|
$
|
7,434
|
|
$
|
(2,898
|
)
|
$
|
836,087
|
|
21
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 31, 2008
(Unaudited)
(in thousands, except for share and per share data)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,266
|
|
$
|
1,503
|
|
$
|
341
|
|
$
|
|
|
$
|
3,110
|
|
Accounts receivable - trade, net of
allowance for doubtful accounts
|
|
|
|
66,043
|
|
179
|
|
|
|
66,222
|
|
Refundable income taxes
|
|
885
|
|
|
|
|
|
|
|
885
|
|
Other current assets
|
|
19,771
|
|
10,846
|
|
800
|
|
|
|
31,417
|
|
Total current assets
|
|
21,922
|
|
78,392
|
|
1,320
|
|
|
|
101,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of
accumulated depreciation and amortization
|
|
2,917
|
|
498,346
|
|
|
|
|
|
501,263
|
|
Goodwill
|
|
|
|
179,930
|
|
|
|
|
|
179,930
|
|
Investment in subsidiaries
|
|
20,541
|
|
|
|
|
|
(20,541
|
)
|
|
|
Other non-current assets
|
|
30,790
|
|
33,629
|
|
13,589
|
|
(4,379
|
)
|
73,629
|
|
|
|
54,248
|
|
711,905
|
|
13,589
|
|
(24,920
|
)
|
754,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
652,988
|
|
(649,637
|
)
|
(7,730
|
)
|
4,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
729,158
|
|
$
|
140,660
|
|
$
|
7,179
|
|
$
|
(20,541
|
)
|
$
|
856,456
|
|
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long term debt
|
|
$
|
1,009
|
|
$
|
727
|
|
$
|
|
|
$
|
|
|
$
|
1,736
|
|
Accounts payable
|
|
3,452
|
|
43,740
|
|
148
|
|
|
|
47,340
|
|
Accrued payroll and related expenses
|
|
1,613
|
|
5,563
|
|
|
|
|
|
7,176
|
|
Accrued closure and post-closure costs,
current portion
|
|
|
|
5,503
|
|
4
|
|
|
|
5,507
|
|
Other current liabilities
|
|
17,334
|
|
11,461
|
|
6,300
|
|
|
|
35,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
23,408
|
|
66,994
|
|
6,452
|
|
|
|
96,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
560,942
|
|
1,338
|
|
|
|
|
|
562,280
|
|
Financing lease obligations, less current
maturities
|
|
|
|
11,674
|
|
|
|
|
|
11,674
|
|
Deferred income taxes
|
|
5,043
|
|
|
|
|
|
|
|
5,043
|
|
Other long-term liabilities
|
|
2,523
|
|
38,904
|
|
1,936
|
|
|
|
43,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock -
Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding -
24,601,000 shares
|
|
246
|
|
100
|
|
100
|
|
(200
|
)
|
246
|
|
Class B common stock -
Authorized - 1,000,000 shares, $0.01 par value, 10 votes per share, issued
and outstanding - 988,000 shares
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Accumulated other comprehensive income (loss)
|
|
3,395
|
|
(1,423
|
)
|
27
|
|
1,396
|
|
3,395
|
|
Additional paid-in capital
|
|
278,543
|
|
46,430
|
|
3,988
|
|
(50,418
|
)
|
278,543
|
|
Accumulated deficit
|
|
(144,952
|
)
|
(23,357
|
)
|
(5,324
|
)
|
28,681
|
|
(144,952
|
)
|
Total stockholders equity
|
|
137,242
|
|
21,750
|
|
(1,209
|
)
|
(20,541
|
)
|
137,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
729,158
|
|
$
|
140,660
|
|
$
|
7,179
|
|
$
|
(20,541
|
)
|
$
|
856,456
|
|
22
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2007
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
150,483
|
|
$
|
1,702
|
|
$
|
(1,702
|
)
|
$
|
150,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
|
95,538
|
|
1,785
|
|
(1,702
|
)
|
95,621
|
|
General and administration
|
|
463
|
|
18,199
|
|
236
|
|
|
|
18,898
|
|
Depreciation and amortization
|
|
403
|
|
19,733
|
|
|
|
|
|
20,136
|
|
|
|
866
|
|
133,470
|
|
2,021
|
|
(1,702
|
)
|
134,655
|
|
Operating income (loss)
|
|
(866
|
)
|
17,013
|
|
(319
|
)
|
|
|
15,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(8,244
|
)
|
(167
|
)
|
(150
|
)
|
8,315
|
|
(246
|
)
|
Interest expense
|
|
11,744
|
|
7,602
|
|
|
|
(8,315
|
)
|
11,031
|
|
Loss (income) from equity method
investments
|
|
(6,856
|
)
|
1,487
|
|
|
|
6,856
|
|
1,487
|
|
Other expense (income)
|
|
87
|
|
(52
|
)
|
|
|
|
|
35
|
|
Other expense/(income), net
|
|
(3,269
|
)
|
8,870
|
|
(150
|
)
|
6,856
|
|
12,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes and discontinued operations
|
|
2,403
|
|
8,143
|
|
(169
|
)
|
(6,856
|
)
|
3,521
|
|
(Benefit) provision for income taxes
|
|
(427
|
)
|
|
|
11
|
|
|
|
(416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before discontinued operations
|
|
2,830
|
|
8,143
|
|
(180
|
)
|
(6,856
|
)
|
3,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net
|
|
|
|
(670
|
)
|
|
|
|
|
(670
|
)
|
Loss on disposal of discontinued
operations, net
|
|
|
|
(437
|
)
|
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
stockholders
|
|
$
|
2,830
|
|
$
|
7,036
|
|
$
|
(180
|
)
|
$
|
(6,856
|
)
|
$
|
2,830
|
|
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2008
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
157,538
|
|
$
|
1,694
|
|
$
|
(1,694
|
)
|
$
|
157,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
|
103,556
|
|
1,866
|
|
(1,694
|
)
|
103,728
|
|
General and administration
|
|
(7
|
)
|
18,264
|
|
42
|
|
|
|
18,299
|
|
Depreciation and amortization
|
|
310
|
|
19,195
|
|
|
|
|
|
19,505
|
|
|
|
303
|
|
141,015
|
|
1,908
|
|
(1,694
|
)
|
141,532
|
|
Operating income (loss)
|
|
(303
|
)
|
16,523
|
|
(214
|
)
|
|
|
16,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(7,708
|
)
|
(43
|
)
|
(24
|
)
|
7,690
|
|
(85
|
)
|
Interest expense
|
|
10,384
|
|
7,644
|
|
|
|
(7,690
|
)
|
10,338
|
|
Loss (income) from equity method
investments
|
|
(7,788
|
)
|
1,045
|
|
|
|
7,788
|
|
1,045
|
|
Other income
|
|
(7
|
)
|
(57
|
)
|
|
|
|
|
(64
|
)
|
Other expense/(income), net
|
|
(5,119
|
)
|
8,589
|
|
(24
|
)
|
7,788
|
|
11,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes and discontinued operations
|
|
4,816
|
|
7,934
|
|
(190
|
)
|
(7,788
|
)
|
4,772
|
|
Provision (benefit) for income taxes
|
|
2,750
|
|
|
|
(44
|
)
|
|
|
2,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common
stockholders
|
|
$
|
2,066
|
|
$
|
7,934
|
|
$
|
(146
|
)
|
$
|
(7,788
|
)
|
$
|
2,066
|
|
23
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 2007
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
299,009
|
|
$
|
3,404
|
|
$
|
(3,404
|
)
|
$
|
299,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
2
|
|
192,041
|
|
3,886
|
|
(3,404
|
)
|
192,525
|
|
General and administration
|
|
428
|
|
36,261
|
|
77
|
|
|
|
36,766
|
|
Depreciation and amortization
|
|
853
|
|
39,191
|
|
|
|
|
|
40,044
|
|
|
|
1,283
|
|
267,493
|
|
3,963
|
|
(3,404
|
)
|
269,335
|
|
Operating income (loss)
|
|
(1,283
|
)
|
31,516
|
|
(559
|
)
|
|
|
29,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(17,222
|
)
|
(120
|
)
|
(310
|
)
|
16,978
|
|
(674
|
)
|
Interest expense
|
|
23,657
|
|
15,394
|
|
|
|
(16,978
|
)
|
22,073
|
|
Loss (income) from equity method
investments
|
|
(12,858
|
)
|
3,638
|
|
|
|
12,858
|
|
3,638
|
|
Other income
|
|
(120
|
)
|
(2,240
|
)
|
|
|
|
|
(2,360
|
)
|
Other expense/(income), net
|
|
(6,543
|
)
|
16,672
|
|
(310
|
)
|
12,858
|
|
22,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes and discontinued operations
|
|
5,260
|
|
14,844
|
|
(249
|
)
|
(12,858
|
)
|
6,997
|
|
Provision for income taxes
|
|
688
|
|
|
|
26
|
|
|
|
714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before discontinued operations
|
|
4,572
|
|
14,844
|
|
(275
|
)
|
(12,858
|
)
|
6,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net
|
|
|
|
(1,274
|
)
|
|
|
|
|
(1,274
|
)
|
Loss on disposal of discontinued
operations, net
|
|
|
|
(437
|
)
|
|
|
|
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
stockholders
|
|
$
|
4,572
|
|
$
|
13,133
|
|
$
|
(275
|
)
|
$
|
(12,858
|
)
|
$
|
4,572
|
|
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 2008
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
315,442
|
|
$
|
3,387
|
|
$
|
(3,387
|
)
|
$
|
315,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
245
|
|
207,681
|
|
3,631
|
|
(3,387
|
)
|
208,170
|
|
General and administration
|
|
(133
|
)
|
36,762
|
|
110
|
|
|
|
36,739
|
|
Depreciation and amortization
|
|
650
|
|
38,325
|
|
|
|
|
|
38,975
|
|
|
|
762
|
|
282,768
|
|
3,741
|
|
(3,387
|
)
|
283,884
|
|
Operating income (loss)
|
|
(762
|
)
|
32,674
|
|
(354
|
)
|
|
|
31,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(15,461
|
)
|
(67
|
)
|
(163
|
)
|
15,424
|
|
(267
|
)
|
Interest expense
|
|
20,622
|
|
15,296
|
|
|
|
(15,424
|
)
|
20,494
|
|
Loss (income) from equity method
investments
|
|
(15,121
|
)
|
2,173
|
|
|
|
15,121
|
|
2,173
|
|
Other income
|
|
(42
|
)
|
(110
|
)
|
|
|
|
|
(152
|
)
|
Other
expense/(income), net
|
|
(10,002
|
)
|
17,292
|
|
(163
|
)
|
15,121
|
|
22,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income taxes and discontinued operations
|
|
9,240
|
|
15,382
|
|
(191
|
)
|
(15,121
|
)
|
9,310
|
|
Provision for income taxes
|
|
4,998
|
|
|
|
25
|
|
|
|
5,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before discontinued operations
|
|
4,242
|
|
15,382
|
|
(216
|
)
|
(15,121
|
)
|
4,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
Loss on disposal of discontinued
operations, net
|
|
|
|
(34
|
)
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common
stockholders
|
|
$
|
4,242
|
|
$
|
15,337
|
|
$
|
(216
|
)
|
$
|
(15,121
|
)
|
$
|
4,242
|
|
24
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 2007
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating
Activities
|
|
$
|
(3,434
|
)
|
$
|
39,576
|
|
$
|
(832
|
)
|
$
|
|
|
$
|
35,310
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
(93
|
)
|
|
|
|
|
(93
|
)
|
Additions to property, plant and equipment
- growth
|
|
|
|
(7,965
|
)
|
|
|
|
|
(7,965
|
)
|
-
maintenance
|
|
(583
|
)
|
(34,442
|
)
|
|
|
|
|
(35,025
|
)
|
Payments on landfill operating lease
contracts
|
|
|
|
(2,413
|
)
|
|
|
|
|
(2,413
|
)
|
Investment in unconsolidated entities
|
|
(85
|
)
|
|
|
|
|
|
|
(85
|
)
|
Other
|
|
|
|
2,639
|
|
|
|
|
|
2,639
|
|
Net Cash Used In Investing Activities
|
|
(668
|
)
|
(42,274
|
)
|
|
|
|
|
(42,942
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
221,605
|
|
|
|
|
|
|
|
221,605
|
|
Principal payments on long-term debt
|
|
(149,176
|
)
|
(292
|
)
|
|
|
|
|
(149,468
|
)
|
Redemption of Series A redeemable,
convertible preferred stock
|
|
(75,057
|
)
|
1
|
|
|
|
|
|
(75,056
|
)
|
Other
|
|
302
|
|
|
|
|
|
|
|
302
|
|
Intercompany borrowings
|
|
8,785
|
|
(8,656
|
)
|
(129
|
)
|
|
|
|
|
Net Cash (Used in) Provided by Financing
Activities
|
|
6,459
|
|
(8,947
|
)
|
(129
|
)
|
|
|
(2,617
|
)
|
Cash Provided by Discontinued Operations
|
|
|
|
51
|
|
|
|
|
|
51
|
|
Net (decrease) increase in cash and cash
equivalents
|
|
2,357
|
|
(11,594
|
)
|
(961
|
)
|
|
|
(10,198
|
)
|
Cash and cash equivalents, beginning of
period
|
|
(1,967
|
)
|
13,015
|
|
1,318
|
|
|
|
12,366
|
|
Cash and cash equivalents, end of period
|
|
$
|
390
|
|
$
|
1,421
|
|
$
|
357
|
|
$
|
|
|
$
|
2,168
|
|
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 2008
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating
Activities
|
|
$
|
(10,466
|
)
|
$
|
49,915
|
|
$
|
(232
|
)
|
$
|
|
|
$
|
39,217
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
(458
|
)
|
|
|
|
|
(458
|
)
|
Additions to property, plant and equipment
- growth
|
|
|
|
(8,232
|
)
|
|
|
|
|
(8,232
|
)
|
-
maintenance
|
|
(1,034
|
)
|
(28,930
|
)
|
|
|
|
|
(29,964
|
)
|
Payments on landfill operating lease
contracts
|
|
|
|
(1,825
|
)
|
|
|
|
|
(1,825
|
)
|
Proceeds from divestitures
|
|
|
|
670
|
|
|
|
|
|
670
|
|
Other
|
|
(2,396
|
)
|
895
|
|
|
|
|
|
(1,501
|
)
|
Net Cash Used In Investing Activities
|
|
(3,430
|
)
|
(37,880
|
)
|
|
|
|
|
(41,310
|
)
|
Cash Flows
from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
Principal payments on long-term debt
|
|
(58,660
|
)
|
(444
|
)
|
|
|
|
|
(59,104
|
)
|
Other
|
|
1,446
|
|
|
|
|
|
|
|
1,446
|
|
Intercompany borrowings
|
|
11,116
|
|
(11,441
|
)
|
325
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing
Activities
|
|
13,902
|
|
(11,885
|
)
|
325
|
|
|
|
2,342
|
|
Cash Provided by Discontinued Operations
|
|
|
|
47
|
|
|
|
|
|
47
|
|
Net increase in cash and cash equivalents
|
|
6
|
|
197
|
|
93
|
|
|
|
296
|
|
Cash and cash equivalents, beginning of
period
|
|
1,260
|
|
1,306
|
|
248
|
|
|
|
2,814
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,266
|
|
$
|
1,503
|
|
$
|
341
|
|
$
|
|
|
$
|
3,110
|
|
25
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The
following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included under Item 1. In
addition, reference should be made to the Companys audited Consolidated
Financial Statements and Notes thereto and related Managements Discussion and
Analysis of Financial Condition and Results of Operations appearing in the
Companys Annual Report on Form 10-K for the year ended April 30,
2008.
Forward
Looking Statements
This
Quarterly Report on Form 10-Q and, in particular, this management
discussion and analysis contain or incorporate a number of forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Exchange Act of 1934, as amended
(the Exchange Act), including statements regarding:
·
expected future revenues, operations,
expenditures and cash needs;
·
fluctuations in the commodity pricing of the
Companys recyclables, increases in landfill tipping fees and fuel costs, and
general economic and weather conditions;
·
projected future obligations related to
capping, closure and post-closure costs of the Companys existing landfills and
any disposal facilities which the Company may own or operate in the future;
·
the projected development of additional
disposal capacity;
·
estimates of the potential markets for the
Companys products and services, including the anticipated drivers for future
growth;
·
sales and marketing plans;
·
potential business combinations; and
·
projected improvements to the Companys
infrastructure and impact of such improvements on the Companys business and
operations.
In
addition, any statements contained in or incorporated by reference into this
report that are not statements of historical fact should be considered
forward-looking statements. You can
identify these forward-looking statements by the use of the words believes, expects,
anticipates, plans, may, will, would, intends, estimates and
other similar expressions, whether in the negative or affirmative. These forward-looking statements are based on
current expectations, estimates, forecasts and projections about the industry
and markets in which the Company operates as well as managements beliefs and
assumptions, and should be read in conjunction with the Companys consolidated
financial statements and notes to consolidated financial statements included in
this report. The Company cannot
guarantee that the Company actually will achieve the plans, intentions or
expectations disclosed in the forward-looking statements made. There are a number of important risks and
uncertainties that could cause the Companys actual results to differ
materially from those indicated by such forward-looking statements. These risks and uncertainties include,
without limitation, those detailed in Item 1A, Risk Factors in the Companys
Annual Report on Form 10-K for the year ended April 30, 2008. The Company does not intend to update
publicly any forward-looking statements whether as a result of new information,
future events or otherwise, except as otherwise required by law.
Company Overview
Casella
Waste Systems, Inc. is a vertically-integrated regional solid waste
services company that provides collection, transfer, disposal and recycling
services to residential, industrial and commercial customers, primarily in the
eastern United States. Our Company was founded in 1975 as a single truck
operation in Rutland, Vermont and the business now operates in fifteen states.
We operate vertically integrated solid
26
waste
operations in Vermont, New Hampshire, New York, Massachusetts, and Maine; and
stand alone materials processing facilities in Connecticut, Pennsylvania, New
Jersey, North Carolina, South Carolina, Tennessee, Georgia, Florida, Michigan,
and Wisconsin.
As
of November 28, 2008, the Company owned and/or operated 32 solid waste
collection operations, 31 transfer stations, 37 recycling facilities,
eight Subtitle D landfills, two landfills permitted to accept construction and
demolition materials, and one waste-to-energy facility, as well as a 50%
interest in a joint venture that manufactures, markets and sells cellulose
insulation made from recycled fiber and a 16.2% interest in a company that
markets an incentive based recycling service.
Operating
Results
For
the three months ended October 31, 2008, the Company reported revenues of
$157.5 million, an increase of $7.0 million, or 4.7%, from $150.5 million in
the quarter ended October 31, 2007.
Solid waste revenues, including the Companys major accounts program,
increased 2.2%, with 3.3% coming from higher prices, primarily from our
collection operations, 1.0% from the rollover effect of a major accounts
tuck-in acquisition and the balance from higher landfill volumes, all partially
offset by lower collection volumes. FCR recycling
revenues increased 14.2%, with 13.0% coming from commodity price increases and
1.2% from higher volumes in the quarter
.
Operating income for the three
months ended October 31, 2008 increased to $16.0 million from $15.8
million for the quarter ended October 31, 2007. Operating income was favorably impacted by
higher revenue levels and lower general and administration and depreciation and
amortization expenses, which were largely offset by higher cost of operations.
FCR
recycling revenues reflect higher commodity prices in the current quarter
compared to a year ago. However,
beginning in the month of October 2008, average commodity prices began to
decline which decreased FCR recycling operating income for the current quarter by
approximately $0.4 million. In November 2008,
commodity prices declined sharply driven by a severe drop in demand as a result
of global economic conditions.
During
the second quarter of fiscal year 2008, the Company completed the sale of the
Companys Buffalo, N.Y. transfer station, hauling operation and related
equipment in the Western region for proceeds of $4.9 million including a note
receivable for $2.5 million and net cash proceeds of $2.4 million.The company
recorded a loss on disposal of discontinued operations (net of tax) of $0.4
million.
During
the fourth quarter of fiscal year 2008, the Company terminated its operation of
MTS Environmental, a soils processing operation in the North Eastern region.
The
Company completed its divestiture of its FCR Greenville operation in the
quarter ended July 31, 2008 for cash proceeds of $0.7 million. For the six months ended October 31,
2008, the company recorded a loss on disposal of discontinued operations (net
of tax) of $0.03 million.
The
operating results of these operations for the three and six months ended October 31,
2007 and 2008 have been reclassified from continuing to discontinued operations
in the accompanying consolidated financial statements.
General
Revenues
The
Companys revenues in our North Eastern, South Eastern, Central and Western
regions are attributable primarily to fees charged to customers for solid waste
disposal and collection, landfill, waste-to-energy, transfer and recycling
services. The Company derives a
substantial portion of its collection revenues from commercial, industrial and
municipal services that are generally performed under service agreements or
pursuant to contracts with municipalities.
The majority of the Companys residential
27
collection
services are performed on a subscription basis with individual households. Landfill, waste-to-energy facility and
transfer customers are charged a tipping fee on a per ton basis for disposing
of their solid waste at the Companys disposal facilities and transfer
stations. The majority of the Companys
disposal and transfer customers are under one to ten year disposal contracts,
with most having clauses for annual cost of living increases. Recycling revenues, which are included in FCR
recycling and the Central and Western regions, consist of revenues from the
sale of recyclable commodities and operations and maintenance contracts of
recycling facilities for municipal customers.
The
Companys cellulose insulation business is conducted through a 50/50 joint
venture with Louisiana-Pacific Corporation (GreenFiber), and accordingly, the
Company recognizes half of the joint ventures net income on the equity method
in our results of operations. The
Company also has a cost method investment in the common stock of RecycleRewards, Inc.
(RecycleRewards), a company that markets an incentive based recycling
service. In April 2008, the Companys
voting interest was reduced to 16.2%.
Effective April 2008, the Company accounts for its investment in
RecycleRewards under the cost method of accounting. Prior to April 2008 the Company
accounted for this investment under the equity method of accounting. Also, in the Other segment, we have
ancillary revenues including major customer accounts.
The
Companys revenues are shown net of inter-company eliminations. The Company typically establishes its
inter-company transfer pricing based upon prevailing market rates. The table
below shows, for the periods indicated, the percentages and dollars of revenue
attributable to services provided.
|
|
Three Months Ended October 31,
|
|
Six Months Ended October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection
|
|
$
|
69.2
|
|
46.0
|
%
|
$
|
70.0
|
|
44.5
|
%
|
$
|
138.3
|
|
46.3
|
%
|
$
|
141.4
|
|
44.8
|
%
|
Landfill / disposal facilities
|
|
$
|
29.0
|
|
19.2
|
%
|
$
|
30.9
|
|
19.6
|
%
|
$
|
58.2
|
|
19.5
|
%
|
$
|
59.9
|
|
19.0
|
%
|
Transfer
|
|
$
|
7.7
|
|
5.1
|
%
|
$
|
8.7
|
|
5.5
|
%
|
$
|
15.0
|
|
5.0
|
%
|
$
|
17.9
|
|
5.7
|
%
|
Recycling
|
|
$
|
44.6
|
|
29.7
|
%
|
$
|
47.9
|
|
30.4
|
%
|
$
|
87.5
|
|
29.2
|
%
|
$
|
96.2
|
|
30.5
|
%
|
Total revenues
|
|
$
|
150.5
|
|
100.0
|
%
|
$
|
157.5
|
|
100.0
|
%
|
$
|
299.0
|
|
100.0
|
%
|
$
|
315.4
|
|
100.0
|
%
|
Collection
revenues decreased as a percentage of total revenues in the three and six
months ended October 31, 2008 compared to the prior year primarily due to
lower volumes, partially offset by price increases and the effect of a major
accounts tuck-in acquisition.
Landfill/disposal facilities revenues increased as a percentage of total
revenues in the quarter ended October 31, 2008 primarily due to volume
growth. Landfill/disposal revenues
increased in the six months ended October 31, 2008 due to higher volumes
and decreased as a percentage of total revenue mainly because of the increase
in recycling revenues. Transfer revenues
increased as a percentage of total revenues in the three and six months ended October 31,
2008 due to volume growth. Recycling
revenues are primarily from recycling facilities in the FCR region. The increase in recycling revenue dollars for
the three and six months ended October 31, 2008 is primarily attributable
to higher commodity prices and to a lesser extent an increase in commodity
volumes. As noted above, beginning in
the month of October 2008, FCR recycling revenues were impacted due to
lower average commodity prices.
Operating Expenses
Cost
of operations includes labor, tipping fees paid to third-party disposal
facilities, fuel, maintenance and repair of vehicles and equipment, workers
compensation and vehicle insurance, the cost of purchasing materials to be
recycled, third party transportation expense, district and state taxes, host
community fees and royalties. Cost of
operations also includes accretion expense related to landfill capping, closure
and post closure, leachate treatment and disposal costs and depletion of
landfill operating lease obligations.
28
General
and administration expenses include management, clerical and administrative
compensation and overhead, professional services and costs associated with
marketing, sales force and community relations efforts.
Depreciation
and amortization expense includes depreciation of fixed assets over the
estimated useful life of the assets using the straight-line method,
amortization of landfill airspace assets under the units-of-consumption method,
and the amortization of intangible assets (other than goodwill) using the
straight-line method. In accordance with
SFAS No. 143,
Accounting for Asset
Retirement Obligations,
except for accretion expense, the Company
amortizes landfill retirement assets through a charge to cost of operations
using a straight-line rate per ton as landfill airspace is utilized. The amount of landfill amortization expense
related to airspace consumption can vary materially from landfill to landfill
depending upon the purchase price and landfill site and cell development
costs. The Company depreciates all fixed
and intangible assets, other than goodwill, to a zero net book value, and does
not apply a salvage value to any fixed assets.
The
Company capitalizes certain direct landfill development costs, such as
engineering, permitting, legal, construction and other costs associated
directly with the expansion of existing landfills. Additionally, the Company also capitalizes
certain third party expenditures related to pending acquisitions, such as legal
and engineering costs. The Company
routinely evaluates all such capitalized costs, and expenses those costs
related to projects not likely to be successful. Internal and indirect landfill development
and acquisition costs, such as executive and corporate overhead, public
relations and other corporate services, are expensed as incurred.
The
Company will have material financial obligations relating to capping, closure
and post-closure costs of its existing landfills and any disposal facilities
which it may own or operate in the future.
The Company has provided, and will in the future provide, accruals for
these future financial obligations based on engineering estimates of
consumption of permitted landfill airspace over the useful life of any such
landfill. There can be no assurance that
the Companys financial obligations for capping, closure or post-closure costs
will not exceed the amount accrued and reserved or amounts otherwise receivable
pursuant to trust funds.
Results of Operations
The
following table sets forth for the periods indicated the percentage
relationship that certain items from the Companys consolidated financial
statements bear in relation to revenues.
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2007
|
|
2008
|
|
2007
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost of operations
|
|
63.5
|
%
|
65.8
|
%
|
64.4
|
%
|
66.0
|
%
|
General and administration
|
|
12.6
|
%
|
11.6
|
%
|
12.3
|
%
|
11.6
|
%
|
Depreciation and amortization
|
|
13.4
|
%
|
12.4
|
%
|
13.4
|
%
|
12.4
|
%
|
Operating income
|
|
10.5
|
%
|
10.2
|
%
|
9.9
|
%
|
10.0
|
%
|
Interest expense, net
|
|
7.2
|
%
|
6.5
|
%
|
7.2
|
%
|
6.4
|
%
|
Loss from equity method investments
|
|
1.0
|
%
|
0.7
|
%
|
1.2
|
%
|
0.7
|
%
|
Other income, net
|
|
0.0
|
%
|
0.0
|
%
|
-0.8
|
%
|
0.0
|
%
|
Provision (benefit) for income taxes
|
|
-0.3
|
%
|
1.7
|
%
|
0.2
|
%
|
1.6
|
%
|
Income before discontinued operations
|
|
2.6
|
%
|
1.3
|
%
|
2.1
|
%
|
1.3
|
%
|
29
Three months ended October 31, 2008
versus October 31, 2007
Revenues -
Revenues increased $7.0 million, or 4.7%, to
$157.5 million in the quarter ended October 31, 2008 from $150.5 million
in the quarter ended October 31, 2007.
Solid waste revenues, including the Companys major accounts program,
increased $2.6 million, with $3.5 million coming from price increases in our
collection operations. Revenues from the
rollover effect of acquisitions, primarily from a major accounts tuck-in
acquisition, accounted for $1.2 million of the increase. Although landfill volumes increased year over
year, these increases were more than offset by lower collection volumes, which
negatively impacted revenue by $2.1 million.
FCR recycling revenues increased $4.4 million mainly due to higher
commodity prices and volumes.
Cost of operations -
Cost of operations
increased $8.1 million, or 8.5%, to $103.7 million in the quarter ended October 31,
2008 from $95.6 million in the quarter ended October 31, 2007. Cost of operations as a percentage of
revenues increased to 65.8% in the quarter ended October 31, 2008 compared
to 63.5% in the quarter ended October 31, 2007. The cost of operations increase is due to an
increase in the cost of purchased materials associated with higher FCR
recycling revenues, higher fuel costs and property tax expense, due to a
property tax refund recognized in the prior year quarter, partially offset by
lower direct labor and third party disposal costs. Also included in prior year results was a reduction in cost of operations in
the amount of $0.6 million from transactions involving the domestic brokerage
and Canadian recycling operations as payments received on the notes receivable
in the three months ended October 31, 2007 exceeded the balance of the net
assets under contractual obligation.
General and administration -
General and
administration expenses decreased $0.6 million, or 3.2%, to $18.3 million in
the quarter ended October 31, 2008 from $18.9 million in the quarter ended
October 31, 2007. General and
administration expenses as a percentage of revenues decreased to 11.6% in the
quarter ended October 31, 2008 from 12.6% in the quarter ended October 31,
2007. The dollar decrease in general
administration expenses year over year is primarily due to lower bad debt
expense, due to a recovery in the quarter.
Depreciation and amortization -
Depreciation and
amortization expense decreased $0.6 million, or 3.0%, to $19.5 million in the
quarter ended October 31, 2008 from $20.1 million in the quarter ended
October, 31, 2007. Landfill amortization expense decreased by
$0.8 million primarily due to lower amortization volumes and rates at our
Colebrook closure facility, which closed in the quarter ended October 31,
2008, partially offset by an increase in amortization at our Worcester closure
facility due to increased volumes. Depreciation expense increased between
periods by $0.2 million. Depreciation
and amortization expense as a percentage of revenue decreased to 12.4% for the
three months ended October 31, 2008 from 13.4% for the three months ended October 31,
2007.
O
perating income -
Operating income was
$16.0 million for the quarter ended October 31, 2008 compared to $15.8
million for the quarter ended October 31, 2007. As a percentage of revenue, operating income
decreased to 10.2% in the quarter ended October 31, 2008 compared to 10.5%
for the quarter ended October 31, 2007.
Total operating income was favorably impacted by higher revenue levels
and lower general and administration and depreciation and amortization
expenses, which were largely offset by higher cost of operations as discussed
above. Western region operating income increased year
over year due to higher landfill volumes, increased collection prices, and
lower operating costs. Central region
operating income declined year over year due to lower revenues primarily from
lower landfill volumes, including the impact of the closure of Colebrook. FCRs recycling operating income decreased
year over year as increased revenues from higher commodity prices and volumes
were more than offset by an increase in the costs of purchased materials,
direct labor and operating costs. Also,
included in operating income for the three months ended October 31,
2007 was $0.6 million of income from the transactions involving the domestic
brokerage and Canadian recycling operations as discussed above.
30
Interest expense, net -
Net interest expense decreased $0.5 million,
or 4.6%, to $10.3 million in the quarter ended October 31, 2008 from $10.8
million in the quarter ended October 31, 2007. This decrease is attributable to lower
interest rates on the Companys senior credit facility partially offset by
higher net debt levels. Net interest
expense, as a percentage of revenues, decreased to 6.5% in the quarter ended October 31,
2008 from 7.2% in the quarter ended October 31, 2007.
Loss from equity method investments -
The loss from equity method investments in
the quarter ended October 31, 2008 relates to the Companys 50% joint
venture interest in GreenFiber, and for the quarter ended October 31, 2007
also included losses from the Companys interest in RecycleRewards. GreenFiber reported a loss for the quarter
ended October 31, 2008 of which the Companys share was $1.0 million,
compared to a loss of $0.9 million in the quarter ended October 31,
2007. GreenFiber continues to be
negatively impacted by the overall slowdown in the housing market. The Company also has an investment in the
common stock of RecycleRewards, a company that markets an incentive based
recycling service. In April 2008,
the Companys voting interest was reduced to 16.2% from 20.5%. Effective April 2008, the Company
accounts for its investment in RecycleRewards under the cost method of
accounting. Prior to April 2008 the
Company accounted for this investment under the equity method of
accounting. RecycleRewards reported a
loss for the quarter ended October 31, 2007, of which the Companys share
was $0.6 million.
Provision
(benefit) for income taxes
Provision (benefit) for income taxes increased $3.1 million to $2.7
million for the quarter ended October 31, 2008 from ($0.4) million for the
quarter ended October 31, 2007. The
effective tax rate increased to 56.7% in the quarter ended October 31,
2008 from (11.8)% in the quarter ended October 31, 2007. The
rate variance between the periods is due mainly to the book loss projected for
the prior year and the add back of non-deductible items. The high rate for the current quarter results
from lower pre-tax income projected for the year and the add back of
non-deductible items.
Six Months Ended October 31, 2008
versus October 31, 2007
Revenues -
Revenues increased $16.4 million, or 5.5% to
$315.4 million in the six months ended October 31, 2008 from $299.0
million in the six months ended October 31, 2007. Solid waste revenues, including the Companys
major accounts program, increased $6.0 million, with $6.8 million coming from
price increases in our collection operations.
Revenues from the rollover effect of acquisitions, primarily from a
major accounts tuck-in acquisition, accounted for $2.3 million of the
increase. Although landfill volumes
increased year over year, these increases were more than offset by lower
collection volumes, which negatively impacted revenue by $3.1 million. FCR recycling revenues increased $10.4
million mainly due to higher commodity prices and volumes.
Cost of operations -
Cost of operations
increased $15.7 million, or 8.2% to $208.2 million in the six months ended October 31, 2008 from $192.5 million in the six months ended October 31, 2007. Cost of operations as a percentage of
revenues increased to 66.0% in the six months ended October 31, 2008 from 64.4% in the prior year. Despite lower third party disposal, direct
operating and direct labor costs year over year, the cost of operations was up
due to an increase in the cost of purchased materials associated with higher
FCR recycling revenues, higher fuel costs and property tax expense, due to a property
tax refund recognized in the prior year period.
Also, included in the prior year was as a reduction in the amount
of $1.4 million from transactions involving the domestic brokerage and Canadian
recycling operations as payments received on the notes receivable in the six
months ended October 31, 2007 exceeded the balance of the net assets under
contractual obligation.
General and administration -
General and
administration expenses were $36.7 million in the six months ended October 31,
2008 compared to $36.8 million in the six months ended October 31,
2007, and decreased as a percentage of revenues to 11.6% in the six
months ended October 31, 2008 from
12.3% in
31
the
six
months ended October 31, 2007. Higher compensation costs in the six months
ended October 31, 2008 were more than offset by lower costs in most other
general and administration categories.
Depreciation and amortization -
Depreciation
and amortization expense decreased $1.0 million, or 2.5%, to $39.0 million in
the six months ended October 31, 2008 from $40.0 million in
the six months ended October 31,
2007. Landfill amortization
expense decreased by $1.0 million primarily due to lower amortization volumes
and rates at our Colebrook closure facility, which closed in the quarter ended October 31,
2008, partially offset by an increase in amortization at our Worcester closure
facility due to increased volumes. Depreciation expense was relatively
consistent between periods. Depreciation
and amortization expense as a percentage of revenue decreased to 12.4% for the
six months ended October 31, 2008 from 13.4% for the six months ended October 31,
2007.
Operating income
- Operating income increased $1.9 million, or
6.4%, to $31.6 million in the six months ended October 31, 2008 from $29.7
million in the six months ended October 31, 2007 and increased slightly as
a percentage of revenues to 10.0% in the six months ended October 31, 2008
from 9.9% in the six months ended October 31, 2007. Operating income increased year over year due
to higher revenue levels and lower general and administration expenses as a
percentage of revenues and lower depreciation and amortization expenses as
discussed above. Operating income for
the South Eastern region was favorably impacted by $0.8 million from the benefit of a reimbursement from
the Town of Southbridge for previously paid and expensed closure and post
closure costs at the Southbridge landfill site.
Western region operating income increased year over year due to higher
landfill volumes, increases in collection revenues, primarily from increased
prices, and lower operating costs.
Central region operating income declined year over year due to lower
revenues primarily due to lower landfill volumes, including the impact of the
closure of Colebrook. FCR recycling
operating income decreased year over year as increased revenues from higher
commodity prices and volumes were more than offset by an increase in the costs
of purchased materials, direct labor and operational costs. Also, included in prior year operating income
was $1.4 million of income from transactions involving the domestic
brokerage and Canadian recycling operations as discussed above.
Interest
expense, net -
Net interest
expense decreased $1.2 million, or 5.6% to $20.2 million in the six months
ended October 31, 2008 from $21.4 million in the six months ended October 31,
2007. This decrease is attributable to
lower interest rates on the Companys senior credit facility partially offset
by higher net debt levels. Net interest
expense, as a percentage of revenues, decreased to 6.4% in the six months ended
October 31, 2008 from 7.2% in the six months ended October 31, 2007.
Loss from equity method investments -
The loss from equity method investments in
the six months ended October 31, 2008 relates to the Companys 50% joint
venture interest in GreenFiber and for the six months ended October 31,
2007 also included losses from Companys interest in RecycleRewards. GreenFiber reported a loss for the six months
ended October 31, 2008 of which the Companys share was $2.2 million
compared to a loss of $2.7 million in the six months ended October 31,
2007. GreenFiber continues to be
negatively impacted by the overall slowdown in the housing market. As discussed above, effective April 2008,
the Company had a voting interest of 16.2% from its common stock investment in
RecycleRewards and accordingly accounts for this investment under the cost
method of accounting. Prior to April 2008
the Company accounted for this investment under the equity method of
accounting. RecycleRewards reported a
loss for the six months ended October 31, 2007, of which the Companys
share was $0.9 million.
Other (income)/expense -
Other income for the six months ended October 31,
2008 amounted to $0.2 million compared to $2.4 million in the six months ended October 31,
2007. Other income in the six months
ended October 31, 2007 included $2.1 million related to the reversal of
residual accruals originally established in connection with waste handling
agreement disputes between the Companys Maine Energy subsidiary and fifteen
municipalities which were party to the agreements. On June 18,
32
2007,
the Company settled the last of these disputes with the City of Saco and the
city agreed to release the Company from any further residual cancellation
payment obligations
Provision
for income taxes
Provision
for income taxes increased $4.3 million in the six months ended October 31,
2008 to $5.0 million from $0.7 million in the six months ended October 31,
2007. The effective tax rate increased
to 54.0% in the six months ended October 31, 2008 from 10.2% in the six
months ended October 31, 2007. The rate variance between the periods is due
mainly to the book loss projected for the prior year and the add back of
non-deductible items. The high rate for
the current quarter results from lower pre-tax income projected for the year
and the add back of non-deductible items.
Liquidity and Capital Resources
The Companys business is capital intensive. The Companys capital requirements include
acquisitions, fixed asset purchases and capital expenditures for landfill
development and cell construction, as well as site and cell closure. The Companys capital expenditures are
broadly defined as pertaining to either growth or maintenance activities. Growth capital expenditures are defined as
costs related to development of new airspace, permit expansions, new recycling
contracts along with incremental costs of equipment and infrastructure added to
further such activities. Growth capital
expenditures include the cost of equipment added directly as a result of new
business, as well as expenditures associated with increasing infrastructure to
increase throughput at transfer stations and recycling facilities. Growth capital expenditures also include
those outlays associated with acquiring landfill operating leases, which do not
meet the operating lease payment definition, but which were included as a
commitment in the successful bid.
Maintenance capital expenditures are defined as landfill cell
construction costs not related to expansion airspace, costs for normal permit
renewals and replacement costs for equipment due to age or obsolescence.
The Company had net working capital of $1.7 million at October 31,
2008 compared to a deficit of $20.2 million at April 30, 2008. Net working capital comprises current assets,
excluding cash and cash equivalents, minus current liabilities. The increase in net working capital at October 31,
2008 was primarily due to higher trade receivables associated with higher
revenues, higher other current assets associated with commodity hedge contract
valuations along with lower trade payables, and lower payroll accruals.
On
April 28, 2005, the Company entered into a senior credit facility with a
group of banks for which Bank of America is acting as agent. The facility
originally consisted of a senior secured revolving credit facility in the
amount of $350.0 million. On July 25, 2006, the Company amended the
facility to increase the amount of the facility per the original agreement to
$450.0 million, and on May 9, 2007, the Company further amended the
facility to increase the amount to $525.0 million, including a $175.0 million
term B loan and a revolver of $350.0 million.
This credit facility is secured by all of the Companys assets,
including the Companys interest in the equity securities of our subsidiaries.
The
credit facility matures on April 28, 2010. There are required annual
principal payments on the term B loan of $0.9 million for three years, which
began July 25, 2007, with the remaining principal due at maturity. The Company was in compliance with all
covenants at October 31, 2008. The Company expects to seek to refinance the
facility in the first or second quarter of calendar year 2009.
Further
advances were available under the revolver in the amount of $146.5 million and
$156.0 million as of October 31, 2008 and
April 30, 2008, respectively. These
available amounts are net of outstanding irrevocable letters of credit totaling
$38.7 million and $40.4 million as of October 31,
2008 and April 30, 2008, respectively, at which dates no amounts
had been drawn.
The
Company is party to three separate interest rate swap agreements with three
banks for a notional amount of $105.0 million.
One agreement for a notional amount of $30.0 million effectively fixes
the
33
interest
rate index at 4.47% from November 4, 2007 through May 7, 2009. Two agreements, for a notional amount of
$75.0 million, effectively fix the interest index rate on the entire notional
amount at approximately 4.68% from May 6, 2008 through May 6,
2009. These agreements are specifically
designated to interest payments under the Companys term B loan and are
accounted for as effective cash flow hedges pursuant to SFAS No. 133.
The
Company is party to two separate interest rate zero-cost collars (Collars)
for a notional amount of $60.0 million.
The Collars have an interest index rate cap of 6.00% and an interest
index rate floor of approximately 4.48% and are effective from November 6,
2006 through May 5, 2009. These
agreements are specifically designated to interest payments under the revolving
credit facility and are accounted for as effective cash flow hedges pursuant to
SFAS No. 133.
As
of October 31, 2008, the Company had outstanding $195.0 million of Senior
Notes which mature in January 2013.
The Senior Notes contain covenants that restrict dividends, stock
repurchases and other payments, and limit the incurrence of debt and issuance
of preferred stock. The Senior Notes are
guaranteed jointly and severally, fully and unconditionally by the Companys
significant wholly-owned subsidiaries.
On
December 28, 2005, the Company completed a $25.0 million financing
transaction involving the issuance by the Finance Authority of Maine of $25.0
million aggregate principal amount of its Solid Waste Disposal Revenue Bonds Series 2005
(the Bonds) which mature in January 2025. The Bonds are issued pursuant
to an indenture, dated as of December 1, 2005 and are enhanced by an
irrevocable, transferable direct-pay letter of credit issued by Bank of
America, N.A. Pursuant to a Financing Agreement, dated as of December 1,
2005, the Company has borrowed the proceeds of the Bonds to pay for certain
costs relating to equipment acquisition for solid waste collection and
transportation services, all located in Maine.
On
August 13, 2007, the Company redeemed all of the outstanding shares of its
Series A Preferred Stock, pursuant to the mandatory redemption
requirements set forth in the Certificate of Designation for the Series A
Preferred Stock. The shares were redeemed at an aggregate redemption
price of $75.1 million, which was the liquidation value equal to the original
price plus accrued but unpaid dividends through the date of redemption.
The redemption of the Series A Preferred Stock was effected through cash
payouts by the Company of the redemption price upon receipt of stock
certificates and other related documentation from the holders thereof. The Company borrowed against the senior
credit facility to fund this redemption.
On
July 31, 2008, the Company completed a financing for the construction of
two single-stream material recovery facilities as well as engines for a
landfill gas to energy project with a third-party leasing company. The balance on the facility at October 31,
2008 was $11.9 million. The financing
has a seven year term at a fixed rate of interest (approximately 7.1%).
Net cash provided by operating activities amounted to
$39.2 million for the six months ended October 31, 2008
compared
to $35.3 million for the same period of the prior fiscal year. Net income decreased $0.3 million in the six
months ended October 31, 2008 compared to the six months ended October 31,
2007. Losses associated with
discontinued operations decreased by $1.7 million during the same period. Depreciation and amortization expense
decreased by $1.1 million primarily due to lower amortization volumes
and rates at our Colebrook closure facility, which closed in the quarter ended October 31,
2008, partially offset by an increase in landfill amortization at our Worcester
closure facility due to increased volumes.
Depreciation expense was
relatively consistent between periods.
Also contributing to a slight decrease is the accrual of the Series A
Preferred dividend for $1.0 million which was included in interest expense for
the six months ended October 31, 2007 as well as a loss from equity method
investments amounting to a $1.5 decrease in the six months ended October 31,
2008 compared to the six months
34
ended
October 31, 2007. These amounts
were offset by income from assets under
contractual obligations which decreased $1.3 million in the six months ended October 31,
2008 compared to the six months ended October 31, 2007 and other
income of $2.1 associated with the favorable settlement at Maine Energy
resulting in the reversal of residual accruals in the six months ended October 31,
2007. Deferred taxes also contributed to
an increase of $4.0 million in the same period due to projected utilization of
net operating losses.
Changes
in assets and liabilities, net of effects of acquisitions and divestitures,
increased $1.8 million for the six months ended October 31, 2008 compared
to the six months ended October 31, 2007. Changes in accounts receivable
were relatively consistent with a $0.6 million increase for the six
months ended October 31, 2008 compared to the six months ended October 31,
2007.
Accounts payable during the six months ended October 31,
2008 amounted to $4.4 million of cash used
compared with $4.2 million used in the prior year comparable period. Other assets and liabilities amounted to a
$5.8 million use of cash for the six months ended October 31, 2008 compared to a $7.1 million use of cash for the
six months ended October 31, 2007. The decrease of $1.3 million
from the prior year is due primarily to the following: (1) higher payments
for landfill capping, closure and post-closure in the six months ended October 31,
2008 versus the prior period amounting to $1.3 million, (2) reductions
associated with higher payroll accruals at April 30, 2008 amounting to
$3.7 million, (3) lower accrued interest at October 31, 2008
associated with lower interest rates partially offset by higher debt levels
amounting to a $1.6 million decrease, offset by (4) higher other long-term
liabilities at April 30, 2007 associated with the Maine Energy settlement
which took place in the six months ended October 31, 2007 resulting in a
$3.1 million increase, (5) higher net refundable income taxes at October 31,
2007, amounting to a $4.0 million increase, and (6) higher prepaid expenses at April 30, 2008 associated
with the timing of insurance payments, amounting to a $1.0 million decrease.
Net cash used in investing activities was $41.3 million
for the six
months ended October 31,
2008 compared to $42.9 million used in
investing activities in the same period of the prior fiscal year.
Net cash provided by financing activities was $2.3
million for the six months ended October 31, 2008 compared to net cash
used of $2.6 million in the same period of the prior fiscal year. The increase in cash provided by financing
activities is primarily due to lower net borrowings to fund investing
activities.
The Company generally meets liquidity needs from
operating cash flow and its senior credit facility. These liquidity needs are primarily for
capital expenditures for vehicles, containers and landfill development, debt
service costs and capping, closure and post-closure expenditures and
acquisitions. It is the Companys
intention to continue to grow organically and through acquisitions.
The
Company uses a variety of strategies to mitigate the impact of fluctuations in
the commodity prices including entering into fixed price contracts and entering
into hedges which mitigate the variability in cash flows generated from the
sales of recycled paper at floating prices, resulting in a fixed price being
received from these sales. As of October 31, 2008, to minimize the
Companys commodity exposure, the Company was party to thirty-three commodity
hedging agreements. Beginning in the
month of October 2008, average commodity prices began to decline which
impacted FCR recycling operating income by approximately $0.4 million compared
to the quarter ended October 31, 2007.
In November 2008, commodity prices declined sharply driven by a
severe drop in demand as a result of global economic conditions. The Company does not expect a significant
negative impact to liquidity as a result of lower operating income due to
commodity price declines. See Item 3.
Quantitative and Qualitative Disclosures about Market Risk Commodity Price
Volatility below.
Effective October 15,
2008, the Company has filed a universal shelf registration statement with the
SEC. The purpose of the filing is to
renew and replace an existing universal shelf registration statement set to
expire on December 1, 2008. The
Company may from time to time issue securities thereunder in an amount of up to
$250.0 million. However, the Companys
ability and willingness to issue securities
35
pursuant to this registration
statement will depend on market conditions at the time of any such desired
offering and therefore the Company may not be able to issue such securities on
favorable terms, if at all.
Inflation and Prevailing Economic Conditions
To
date, inflation has not had a significant impact on the Companys operations.
Consistent with industry practice, most of the Companys contracts provide for
a pass-through of certain costs, including increases in landfill tipping fees
and, in some cases, fuel costs.
Increases in fuel costs have been passed on through a fuel surcharge
program. The Company therefore believes it should be able to implement price
increases sufficient to offset most cost increases resulting from inflation.
However, competitive factors may require the Company to absorb at least a
portion of these cost increases, particularly during periods of high inflation.
The
Companys business is located mainly in the eastern United States. Therefore, the Companys business, financial
condition and results of operations are susceptible to downturns in the general
economy in this geographic region and other factors affecting the region, such
as state regulations and severe weather conditions. The Company is unable to forecast or determine
the timing and /or the future impact of a sustained economic slowdown.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Interest rate volatility
The
Company had interest rate risk relating to approximately $198.0 million of
long-term debt at October 31, 2008.
The interest rate on the variable rate portion of long-term debt was
approximately 4.35% at October 31, 2008.
Should the average interest rate on the variable rate portion of
long-term debt change by 100 basis points, it would have an approximate
interest expense change of $0.5 million for the quarter reported.
The
remainder of the Companys long-term debt is at fixed rates and not subject to
interest rate risk. This includes $165.0
million of long term debt at fixed rates due to interest rate swaps and collars.
Commodity
price volatility
Through its FCR recycling operation, the
Company is subject to commodity price fluctuations. For the quarter ended October 31, 2008,
fibers (newspapers, cardboard, and mixed papers) made up approximately 67% of
the Companys commodity revenue stream.
A portion of these materials are exposed to minimal commodity volatility
impact because we purchase the materials based off an index price less a
processing fee, and then resell the materials off the same index within a short
period of time. For other tons that may
be exposed to market volatility, the Company uses a number of risk mitigation
strategies such as floor prices, fixed price agreements, and revenue share
arrangements. In addition, as of October
31, 2008 the Company is party to thirty-three commodity hedge contracts that
manage pricing fluctuations on a portion of its OCC and ONP volumes not
protected by the strategies mentioned above.
These contracts expire between December 2008 and December 2011, with
approximately 67% expiring by December 2009.
The Company does not use financial instruments for trading purposes and
is not a party to any leveraged derivatives.
The Company expects to be able to replace its expiring hedges with existing
or new counterparties; however, the pricing terms at any given time will be
subject to prevailing market conditions.
Aluminum made up 8% of the Companys
commodity revenue stream for the quarter ended October 31, 2008. The Company sells the majority of its
aluminum domestically under fixed price contracts, with current contracts
extending through April 2009.
Plastics
(PET and HDPE) made up 22% of the Companys commodity revenue stream for the
quarter ended October 31, 2008. The
Company currently sells the majority of its plastics domestically under long
term contracts at pricing tied to market rates.
It has floor prices in place on most PET contracts and is working to add
fixed price contracts to help manage plastic pricing fluctuations in the future. There are limited hedging instruments
available for stabilizing the pricing for recovered plastics. However, the Company does not utilize these
types of contracts because historically recovered plastics pricing has not been
highly correlated with market indices for virgin plastic resin sales prices.
36
Ferrous metals made up 3% of the Companys
commodity revenue stream for the quarter ended October 31, 2008. The Company currently sells the majority of
its ferrous metals domestically at spot market rates.
FCR recycling uses the above strategies to
mitigate the impact of commodity price volatility. This approach results in a non-linear
relationship between changes in commodity prices and underlying operating
performance.
In November 2008, commodity prices declined
sharply driven by a severe drop in demand as a result of global economic
conditions, including Chinese and domestic mills taking unforeseen downtime to
work off inventories. Based on weighted
average prices and volumes for the second quarter of fiscal 2009 and
considering the effect of the hedges in place at the end of October, if all
commodity prices were to change proportionally by the stated ranges below, the
impact on the Companys revenues and operating income for the quarter ended
October 31, 2008 is estimated as follows:
Commodity Price
|
|
|
|
Operating income
|
|
Change
|
|
Revenues
|
|
(loss)
|
|
-50%
|
|
$
|
(7.4
|
)
|
$
|
(3.5
|
)
|
-20%
|
|
$
|
(3.1
|
)
|
$
|
(1.6
|
)
|
-10%
|
|
$
|
(1.7
|
)
|
$
|
(0.9
|
)
|
10%
|
|
$
|
1.2
|
|
$
|
0.5
|
|
20%
|
|
$
|
2.7
|
|
$
|
1.2
|
|
50%
|
|
$
|
7.0
|
|
$
|
3.2
|
|
When
reviewing these statistics, it should be noted that commodity prices typically
do not move by the same percentage across all the commodities the Company
handles, and that, as noted above, the commodity mix may vary from month to
month, therefore the above sensitivity analysis may not be indicative of future
operating results.
ITEM 4. CONTROLS AND PROCEDURES
a)
Evaluation of disclosure
controls and procedures
.
The Companys management, with the
participation of its chief executive officer and principal
financial and accounting officer,
evaluated the effectiveness of the Companys disclosure controls and procedures
as of October 31, 2008. The term disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the Exchange Act), means controls and
other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SECs rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Companys
management, including its principal executive and principal
financial and accounting officers,
as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the
evaluation of the Companys disclosure controls and procedures as of October 31,
2008, the Companys chief executive officer and principal financial and accounting
officer have concluded that, as
of such date, the Companys disclosure controls and procedures were effective
at the reasonable assurance level.
b)
Changes in internal
controls.
No change in the Companys internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) occurred during the fiscal quarter ended October 31,
2008 that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
On
September 12, 2001, the Companys subsidiary, North Country Environmental
Services, Inc. (NCES), petitioned the New Hampshire Superior Court (Superior
Court) for a declaratory judgment concerning the extent to which the Town of
Bethlehem, New Hampshire (Town) could lawfully prohibit NCESs expansion of
its landfill in Bethlehem. The Town
filed counterclaims seeking contrary
37
declarations
and other relief. The parties appealed
the Superior Courts decision to the New Hampshire Supreme Court (Supreme
Court). On March 1, 2004, the
Supreme Court ruled that NCES had all necessary local approvals to landfill
within a 51-acre portion of its 105-acre parcel and the Town could not prevent
expansion in that area. A significant
portion of NCESs Stage IV expansion as originally designed and approved by the
New Hampshire Department of Environmental Services (NHDES), however, was to
lie outside the 51 acres. With respect
to expansion outside the 51 acres, the Supreme Court remanded four issues to
the Superior Court for further proceedings.
On April 25, 2005, the Superior Court rendered summary judgment in
NCESs favor on two of the four issues, leaving the other two issues for
trial. The two issues that were decided
on summary judgment remain subject to appeal by the Town. In March of 2005, the Town adopted a new
zoning ordinance that prohibited landfilling outside of a new District V,
which corresponded to the 51 acres. The
Town then amended its pleadings to seek a declaration that the new ordinance
was valid. The parties each filed
motions for partial summary judgment.
Following the courts decisions on those motions, the validity of the
new ordinance remained subject to trial based on two defenses raised by
NCES. On March 30, 2007, NCES
applied to the NHDES for a permit modification under which all Stage IV
capacity (denominated Stage IV, Phase II) would be relocated within the 51
acres. That application was superseded
by a new application, filed on November 30, 2007, that would bring all
berms along the perimeter of the landfills footprint within the 51 acres as
well. NCES sought a stay of the
litigation on the ground that, if NHDES were to grant the permit modification,
there would be no need for NCES to expand beyond the 51 acres for eight or more
years, and the case could be dismissed as moot or unripe. The Superior Court granted the stay pending a
decision by NHDES. The permit
modification application currently remains pending before NHDES. The NHDES
conducted public hearings in July and September 2008. The NHDES decision to grant the permit
modification is expected to be made during the fourth quarter of calendar year
2008.
The
Company, on behalf of itself, its subsidiary FCR, LLC (FCR), and as a
Majority Managing Member of Green Mountain Glass, LLC (GMG), initiated a
declaratory judgment action against GR Technologies, Inc. (GRT), Anthony
C. Lane and Robert Cameron Billmyer (the Defendants) on June 8, 2007, to
resolve issues raised by GRT as the minority shareholder of GMG. The issues addressed in the action included
exercise of management discretion, right to intellectual property, and other
related disputes. The Defendants
counterclaimed in May 2008 seeking unspecified damages on a variety of
bases including, among others, breach of contract, breach of fiduciary duty,
fraud, tortious interference with business relations, induced infringement and
other matters. Management intends to
vigorously contest those allegations, and it believes that the claims have no
merit substantively or as a matter of law.
Additionally, the Defendants filed a Derivative Action in Rutland
Superior Court as a Managing Member of GMG on July 2, 2008 against several
employees of the Company and its subsidiary FCR, LLC, making similar
allegations. On September 16, 2008,
the Company filed a Motion for Summary Judgment, and a Proposed Order Decreeing
Dissolution and Appointing a Special Master, alleging that the relationship of
GRT and FCR in GMG is irretrievably broken.
All litigation is in its early stages and, accordingly, it is not
possible at this time to evaluate the likelihood of an unfavorable outcome or
provide meaningful estimates as to amount or range of potential loss, but
management currently believes that the litigation, regardless of its outcome,
will not have a material adverse affect on the Companys financial condition, results of operations or
cash flows.
The
Company offers no prediction of the outcome of any of the proceedings or
negotiations described above. The Company is vigorously defending each of these
lawsuits and claims. However, there can be no guarantee the Company will
prevail or that any judgments against the Company, if sustained on appeal, will
not have a material adverse effect on the Companys business, financial
condition or results of operations or cash flows.
The Company is a defendant in certain other lawsuits
alleging various claims incurred in the ordinary course of business, none of
which, either individually or in the aggregate, the Company believes are
material to its financial condition, results of operations or cash flows.
38
ITEM 1A. RISK FACTORS
See the Companys
risk factors as previously disclosed in its Form 10-K for the year ended April 30,
2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
At the Companys annual
meeting of stockholders held on October 14, 2008, three proposals were
submitted to a vote of the Companys stockholders. The proposals and results of voting were as
follows:
PROPOSAL I.
Proposal to elect, as Class II
directors, Messrs. James W. Bohlig, Gregory B. Peters and Joseph G.
Doody. Proposal to elect, as Class I
director, Michael K.Burke.
James W. Bohlig:
|
|
Votes For:
28,542,738
|
|
|
|
Withheld:
3,982,683
|
|
Gregory B. Peters:
|
|
Votes For:
18,894,252
|
*
|
|
|
Withheld: 3,749,169
|
*
|
Joseph G. Doody:
|
|
Votes For: 28,880,992
|
|
|
|
Withheld: 3,644,429
|
|
Michael K. Burke:
|
|
Votes For: 32,460,388
|
|
|
|
Withheld: 65,033
|
|
* In accordance with the
Companys by-laws, Mr. Peters, who is the designee of the holders of Class A
Common stock, requires only the affirmative vote representing a plurality of
the votes cast by the holders of Class A common stock.
Other directors whose terms
of office continued in effect after the annual meeting are John W. Casella,
Douglas R. Casella, James F. Callahan, Jr., John F. Chapple III, Jr.
and James P. McManus.
PROPOSAL II.
To approve the amendment to
the Companys 2006 Stock Incentive Plan.
Votes For:
|
|
29,516,407
|
|
Votes Against:
|
|
840,526
|
|
Abstentions:
|
|
206,872
|
|
39
PROPOSAL III.
Proposal to ratify the
selection of Vitale, Caturano & Company, Ltd. as the Companys
auditors for the fiscal year ending April 30, 2009.
Votes For:
|
|
32,499,295
|
|
Votes Against:
|
|
16,180
|
|
Abstentions:
|
|
9,946
|
|
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits that are filed as part of
this Quarterly Report on Form 10-Q or that are incorporated by reference
herein are set forth in the Exhibit Index hereto.
40
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Casella Waste Systems, Inc.
|
|
|
|
|
|
|
Date: December 4, 2008
|
|
By:
|
/s/ Paul J. Massaro
|
|
|
(Principal Financial and Accounting
|
|
|
Officer and Duly Authorized Officer)
|
41
Exhibit Index
10.1 +
|
2006 Stock Incentive Plan, as amended.
|
31.1 +
|
Certification of John W. Casella, Chairman of the Board of Directors
and Chief Executive Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.
|
31.2 +
|
Certification of Paul J. Massaro,
Principal Financial and Accounting Officer and Duly Authorized
Officer
pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
|
32.1 ++
|
Certification pursuant to 18 U.S.C. S 1350 of John W. Casella, Chairman of the Board of
Directors and Chief Executive Officer, pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
32.2 ++
|
Certification pursuant to 18 U.S.C. S 1350 of Paul J. Massaro,
Principal Financial and Accounting Officer and Duly Authorized
Officer
, pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
|
+
- Filed herewith
++
- Furnished herewith
42
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